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Enforceable MOU After A Teaming Agreement Held Sub Liable For Damages

Tuesday, July 03, 2018 10:40 am


Breach of Contract

Hi-Tech Elec., Inc. of Del. v. T&B Constr. & Elec. Servs., 2018 U.S. Dist. Lexis 83233 (E.D. La. May 17, 2018)

Friends quickly turned to foes when cooperation between two subcontractors went astray, after a general contractor decided one had defaulted on a project. A district court ruled that one of the subs was contractually obligated to pay the other despite its attempt to nullify a memorandum of understanding (MOU).

T&B Construction and Electrical Services, Inc. (T&B), a small business owned by a disabled veteran, and Hi-Tech Electric, Inc. (HTE) cooperated on a proposal to jointly perform work for a Department of Veterans Affairs (VA) project in New Orleans. T&B and HTE memorialized their "partnership" in a teaming agreement, under which T&B was to submit a bid to general contractor, Clark/McCarthy Healthcare Partners (Clark/McCarthy). T&B and HTE agreed that, if T&B won the contract, it would execute a separate subcontract with HTE.

In January 2012, Clark/McCarthy awarded a subcontract to T&B to perform electrical work on the VA's Pan Am Building. T&B and HTE began jointly working on the project though they hadn't executed a binding subcontract between them. Eventually, in May 2013, the two subs  entered into a MOU that essentially terminated the teaming agreement, defined their relationship, and described their respective duties on the project. But by 2015, tensions between the parties had grown, with T&B calling the MOU invalid and unenforceable. Eventually, the subs ended up in court.

HTE alleged that T&B had stopped passing along payments from the VA and sought $268,643 for project work and $287,427 in retainage. HTE claimed T&B breached the MOU and violated the Louisiana Prompt Payment Statute, La. R.S. 9:2784. The court granted T&B's motion for summary judgment on its breach of contract claim.

Payment structure breakdown

During the course of the project work, HTE paid a vast majority of the costs. In fact, according to HTE's expert, the total job costs amounted to $5,806,930, which included overhead expenses ($1,052,620), materials expenses ($2,984,767) and labor expenses ($1,769,543). These amounts also included T&B's labor and overhead costs. HTE contended that it fronted t [...]

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