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Three Key Questions When Dealing With Suppliers

Friday, February 03, 2006 05:15 pm

 

A significant percentage of construction contract disputes involve equipment, materials or other products supplied to a project. Contractors and subcontractors can avoid many of these problems if they ask, at the outset, three critical questions.

The first question involves the timely availability of a product which will comply with the specifications and other contract requirements. It is crucial that this investigation be conducted before submitting a binding bid or otherwise making a commitment.

The second question addresses the legal terms and conditions that will govern the transaction between the contractor and the supplier. These terms can become decisive in the event of a dispute, particularly with regard to warranties. But the "battle of the forms" frequently makes it difficult to determine which terms govern.

The third question concerns the ability to hold a supplier responsible for any express or implied warranties contained in the agreement. If a supplier cannot ultimately be held accountable, the other precautions will be for naught.

Is There a Compliant, Available Product?

A contractor should not assume, simply because a product has been referenced in the contract, that the product is fully compliant with the specifications. This is because the contract, upon closer reading, usually contains qualifying language.

For instance, one contract listed "available manufacturers" of a heating system component "which may be incorporated in the work." But the contract also said "subject to compliance with requirements." The project owner did not warrant that products from listed manufacturers would meet the specifications. Merit Construction Co. v. General Services Administration, GSBCA No. 12426 (May 31, 1994); CCM August 1994, p. 4.

Similarly, another contract listed "approved sources" of sand and aggregate, but went on to say that designation of a source did not constitute approval of specific materials taken from that source. The contractor had no assurance that the materials would comply with the specifications. Appeal of Claterbos, Inc., IBCA No. 1786-3-84 (August 20, 1986); CCM November 1986, p. 5.

In contrast, if a project owner expressly pre-approves a product, without qualifying language, the owner warrants that the product, if properly installed, will be suitable for the project. Appeal of SPS Mechanical Co., Inc., ASBCA No. 48643 (February 9, 2001); CCM March 2001, p. 4.

The same issue exists with regard to the availability of a named product. When an owner specifies a product, the owner warrants that the product has been commercially available at some time. But that is all. "It is well settled that unless a contract specifically represents that an item required for use in performance is readily available, that the contractor bears the risk that the item cannot be found easily or within set time-frames." Appeal of JEM Development Corp., ASBCA No. 42644 (October 4, 1991); CCM January 1992, p. 4.

When a contractor learned that a specified product from a particular manufacturer had been discontinued from the catalogue, the contractor could not recover the increased cost of procuring the product on a "s [...]

 
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