September 2020 – Law and Civil Engineering

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Know What Constitutes the Contract
by Eugene Bass

A major engineering firm commenced work on a design-build paper mill project without a completed formal written contract. In an early meeting between the engineering firm and the owner’s representative, the engineer had delivered a “proposed Engineering Contract.” The contract contained seventeen pages of substantive terms but included numerous blank spaces allowing for signatures and other additional terms, such as a description of the project and the name of the owner. A letter was also delivered at the meeting affirming the engineer’s commitment to the owner and including an attachment identifying the percentage mark-ups, the engineer proposed to charge for compensation. Soon thereafter, the owner ‘s representative gave the engineer oral notification that the engineer should proceed. Several days later the engineer sent a “Project Confirmation Letter” to the owner which read, in pertinent part, “Pending execution of a mutually acceptable agreement, we will perform our services pursuant to the terms and conditions stated in our ‘proposed Engineering Contract’ previously presented.” That letter was countersigned by the owner’s representative. Thereafter, the engineer began providing engineering services for the Project on a cost-plus basis.

About two weeks later, the owner sent a Purchase Order to the engineer. In the description block the P.O. stated that the engineer was to provide engineering services for the Project in accordance with the terms and conditions set forth in their “proposed Engineering Contract.” The “Terms of Compensation” were also to be in accordance with the letter accompanying the earlier submitted “proposed Engineering Contract.” The P.O. also contained language in smaller print on the lower-left portion of the front side stating: “This order may be accepted only upon the terms and conditions specified above and on the reverse side. Shipment of goods described herein shall be deemed to be an acceptance by the seller of such terms and conditions.” The P.O. included, on the back, seventeen paragraphs of “terms and conditions.”

A dispute over the contract ensued and the owner’s representative testified at trial that he intended the P.O.’s reference to the “Engineering Contract” to pertain to the engineer’s commitment letter and the attached schedule of billing rates. The engineer’s representative testified that he did not notice or pay attention to the language on the P.O., did not countersign the P.O., but continued to work on the Project and admitted that he did not send any writing to the owner expressly rejecting the terms and conditions of the P.O.

The outcome of the trial was that the engineer was bound by the terms of both the “Purchase Order” and the “Engineering Contract” including some very onerous terms contained in the “17 paragraphs on the back of the “Purchase Order.” One of those terms was a warranty that held the engineer to a standard of care higher than normal negligence and substantially increased the liability exposure of the engineer.

The case clearly demonstrated that even a major engineering firm can conduct business in a careless and haphazard way. The engineer should take special care to carefully read, and preferable to have legal counsel review, all contract documents presented by the other side. This case involved a “purchase order” that contained “17 paragraphs” of terms on the reverse side that were held to apply to the contract. One should never assume that writing on the back of the page, in small print, and usually in fade-out lettering, will not apply or that a Purchase Order” cannot be part of the contract. As demonstrated in this case, they can.

This article is intended only to provide general information regarding legal issues. It is not to be relied upon for legal advice. Contact your attorney for advice and guidance on general and specific legal issues.

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