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Subcontractor was 95 percent complete with its work when the general contractor (GC) made changes to the scope of work, failed to timely respond to change order requests, and failed to make payment of amounts then due under the subcontract. Without providing contractually required notice of intended termination, the GC terminated the subcontractor for default – which it subsequently argued it could also do as a convenience termination. Court found the termination was improper and the subcontractor was entitled to recover damages for breach of contract. DeAvila v. Espinoza Metal Building & Roofing Contractors (2018 WL 4113168, Tex. Court of Appeals, 2018).

The subcontract required the subcontractor to install a type of energy efficient roofing system for a fixed price. No schedule was provided but the contract stated that time was of the essence. A provision of the contract permitted the GC to terminate the contract with or without cause by providing a 48-hour notice of termination in writing.

The roofing system was almost completed when the GC decided to move HVAC units from the interior of the building onto the roof. This required holes to be drilled into the roof that the subcontractor had already installed, and this would impact the warranties of the roofing materials. In consequence, the subcontractor prepared a change order request to account for the need to install new insulation, bonding adhesive, roofing material, and counter flashing to maintain the 20-year warranty.

Initially, the GC didn’t respond to the change order request. Instead the GC sent an email to the subcontractor directing him to fix alleged roof leaks and also cut the penetrations for the HVAC equipment. The GC followed up with a letter directing the subcontractor to complete the penetrations no later than December 10. On December 1, the subcontractor went to the job site and found all of this remaining material and work supplies were missing. Assuming these had been stolen, the subcontractor called the police and began filing a crime report before learning that it was the GC who had removed the materials.

About a month later, the GC finally responded to the change order request that had been submitted several months earlier. Its response was a rejection of the pricing proposed, and a counterproposal for pricing instead. The sub signed the revised change order approving the reduced pricing but conditioning this upon advance payment of half of the additional cost. No response was given to this by the GC so the subcontractor performed no further work on the project.

Without first notifying the subcontractor of proposed termination, the GC hired a new subcontractor to complete the roof installation.   The subcontractor then filed suit for breach of contract and quantum meruit. In its defense, the GC argued that the subcontractor refused to complete the work in the original agreement and alternatively argued that he was free to terminate the contract at his convenience and could therefore not be in breach of contract for removing the sub’s materials and forcing his workers off the job site.

The trial court found (and this was sustained on appeal) that the removal of the roofing materials and eviction of the crew for the site constituted a breach of contract and that this occurred prior to any alleged breach of contract by the subcontractor. “When a party to a valid and enforceable contract wrongfully makes another party’s ability to render its performance impossible, the party committing the interference is in breach of contract and the afflicted party is entitled to damages sustained by the breach.”

With regard to the argument that the GC was free to terminate the contract for convenience and could not be considered in breach of contract for doing so, the appellate court held that there was sufficient evidence for the trial court to find that by the GC expelling the subcontractor from the job site without 48 hour advance notice, the GC forfeited its right to claim a contractual right to a termination for convenience.

Comment: A couple points are particularly worth noting about this case. First, the termination notice requirements of a contract must be followed, otherwise the parties forfeit the rights they otherwise have to termination. Second, it is very risky for a general contractor to remove a subcontractor’s materials and supplies from a jobsite. Even if it could be legally done, it could influence a court against the GC. Third, ignoring a change order request for work that must be done may make it impossible for a subcontractor to perform its work – as happened here. Such failure to respond to the change order request in such a situation constitutes a breach of contract entitling the subcontractor from relief from the project schedule and excusing any potential liquidated damages recovery, as well as entitling the subcontractor to damages for breach of contract.

 

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 21, No. 4 (Apr 2019).

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