Contractors often proceed to perform contract work while the details of a written contract are finalized. In a recent Nevada case, a design build sprinkler subcontractor learned the hard way the risks associated with this all too common scenario.[i] The case involved a warehouse construction project. The general contractor, Precision Construction (“Precision”), solicited bids for the design and installation of the sprinkler system. The subcontractor, Certified Fire Protection (“Certified”), submitted a bid of $480,000. Shortly thereafter, Precision notified Certified that Precision had been awarded the job and forwarded a copy of its written subcontract. The subcontract required that preliminary design drawings for the sprinkler work be submitted within two weeks.
Certified objected to many of the terms in the subcontract (including the two week design deadline) but nevertheless proceeded to hire a designer to draft the sprinkler system designs. Several weeks later, with other facets of project construction underway and the subcontract still unsigned, Certified submitted a progress billing of $33,575 for the design work which at that point was still unfinished. Precision refused to pay the bill without a signed subcontract. Certified proceeded to finish the design work and submitted the sprinkler system drawings. The parties had several more communications about getting the subcontract signed. Before a contract was signed, Precision learned that the subcontractor’s design contained errors that needed correction. Shortly thereafter, Precision terminated its relationship with Certified for failing to sign the subcontract, not providing an additional insured endorsement and for providing an incorrect design. At Precision’s request, Certified provided a final billing for work performed reporting costs of $25,185.04. Precision refused to pay and Certified placed a mechanic’s lien on the property and filed suit.
The trial court dismissed the case at the conclusion of Certified’s evidence finding that no contract existed between the parties, and further that Certified could not recover in “quantum meruit” (a Latin phrase meaning “what one has earned”), or for unjust enrichment because the flawed design drawings could not be used by Precision, had no value, and thus did not confer any benefit on Precision. Certified appealed.
On appeal, Certified conceded that the parties never reached agreement on the full design and installation contract, but contended that the parties had a contract for “design only” work because Precision had urged that Certified get started on the design. The Nevada Supreme Court rejected this argument because there was no evidence that the parties had any agreement on either the price or time for performance for the design only. Furthermore, witness testimony at trial established that a general contractor in Precision’s position would never execute a design only subcontract because the design developed is specifically tailored for the subcontractor involved and is not useful to another installer. Certified further argued it was entitled to compensation for unjust enrichment. The court rejected this argument as well on the notion that Precision did not receive anything of value from Certified because the design work at issue could not be used by the replacement subcontractor, and was incomplete and incorrect.
Comment: This case demonstrates the risks involved in starting construction without a signed contract. While the subcontractor in this case ended up recovering nothing, had the facts and the nature of the work performed been different, it is not inconceivable that the general contractor would have had to pay both the original subcontractor for the work it performed, as well as any premium paid to the replacement subcontractor to take over the original subcontractor’s work midstream.
[i] Certified Fire Protection, Inc. v. Precision Construction, Inc., 283 P. 3d 250 (Nev. 2012).