The Contract and Assessing Performance

By John S. Mrowiec

Performance criteria often dictate a standard for a portion of a construction project.

For example, specifications might require a "leak-free" curtain wall system.

Sometimes whether a system will meet the performance criteria depends on what type of test is applied. Some tests are easier to pass than others.

Often, the specification will set forth the test that the system must pass. Sometimes, subcontractors or suppliers will provide a clarification that the system installed will be tested under a particular method. The prime contractor might agree to include that clarification as part of the subcontract.

Does a specified testing method always govern? Does express inclusion of the subcontractor's requested testing method into the subcontract mean that the subcontractor's method will be the one applied?

Neither might govern necessarily as seen by the decision in Clark Construction Group, Inc. v. Allglass Systems, Inc., 2004 U.S. Dist. LEXIS 15459 (D. Md. 2004).

Curtain Wall System Dispute

Tests Show Flaws

After installation, there were a series of tests conducted by various consultants for parties that included the fabricator, the subcontractor and the owner's representative.

Each concluded that the installation was flawed, including the subcontractor's consultant.

The subcontractor began remediation. Even after the partial remediation, portions of the system continued to leak.

The contractor hired another subcontractor to supplement the remediation effort. The remediation was not successfully completed until 11 months after the subcontractor originally was to have been complete and ultimate completion was through a supplemental subcontractor.

The subcontractor's own internal documents admitted that the tests revealed "lack of proper sealant" in "many" locations. To finance the remediation effort, the subcontractor chose not to pay its sub-subcontractors and suppliers.

Suits Filed

The prime contractor sued the subcontractor and the subcontractor's surety. The prime contractor sought damages for (1) costs to complete and to correct the subcontractor's work through the hiring of the supplemental subcontractor; (2), payments to the subcontractor's subcontractors and suppliers; (3) increased general conditions costs because of additional supervision and time-related costs; (4) supplement with the owner for owner's costs and delays; and (5) attorneys' fees.

The subcontractor denied liability and counterclaimed for withheld subcontract balances. The prime contractor and subcontractor each moved for summary judgment.

The subcontractor made a number of arguments, and for the purposes of this article, we will focus on one.

The subcontractor did not challenge the substantive findings of the various reports.

Rather, the subcontractor argued that the windows leaked because the prime contractor performed a "more stringent" "chamber test" than the "hose test" that was referenced in the specifications. According to the subcontractor, use of the "chamber test" was a "constructive change."

It is unclear whether, in light of the numerous deficiencies found, the windows would have flunked a "hose test" as well. Regardless, the Allglass Systems court noted that the subcontractor's reliance on the "hose test" reference overlooked an important contractual provision.

The subcontract expressly incorporated the Owner-Contractor Agreement. That Agreement expressly incorporated the American Institute of Architects, General Conditions of the Contract for Construction.

The General Conditions, section 13.5.2 provided that if the owner determines that "portions of the Work require additional testing, inspection or approval [beyond that 'required by the Contract Documents'] . . . the [Owner] will . . . instruct the Contractor to make arrangements for such additional testing, inspection or approval" Allglass Systems, 2004 U.S. Dist. LEXIS 15459, *17. (The General Conditions section 13.5.2 cited in Allglass Systems matches the AIA A201 General Conditions, section 13.5.2 (1997 ed.)).

This "additional testing" was owner's right, the court held, and by incorporation by reference, bound the subcontractor. Although not discussed by the Allglass Systems court, the General Conditions go on to say that the owner will bear the cost if the work passes the additional test, but if the work fails, contractor (and subcontractor, by incorporation) bear all costs.

The court granted summary judgment on liability for the contractor against the subcontractor's performance bond surety. The only issue left for trial on the contractor's complaint was the amount of damages.

The Allglass Systems case shows that the specified testing method might not apply if the Owner exercises its rights under an "additional testing" provision worded like that of the AIA A201 General Conditions. An express exclusion of that "additional testing" right in the Owner-Contractor Agreement or in the subcontract might dictate a contrary result.