Matthew DeVries | Best Practices Construction Law
As a single dad of a handful of kids, my evenings and weekends are always a joyful ride. Just last weekend, I had a mini trial with one of my Littles who, get this, wanted to spend the night at a friend’s house, but also wanted to go to the movies with her other siblings. My verdict: “You can’t have it both ways!”
In Goes v. Vogler, 937 N.W.2d 190 (2020), the Supreme Court of Nebraska recently reached the same conclusion when it considered whether a particular contract was a cost-plus contract with a guaranteed maximum price or a lump sum contract. The owners argued that the contract was a fixed fee despite the language to the contrary. Paragraph 47 of the contract stated that it was a “cost plus contract” with specific fees for overhead, warranty and profit to the contractor, while another part of the contract included language that the “agreed upon price is $282,000.00.”
During performance, the owners raised concerns about how the money on the project was being spent and requested that the contractor provide an accounting. Ultimately, the contractor terminated the contract alleging lack of payment. In consolidated lawsuits by the contractor and various subcontractors, the court held that the owners had withheld payment because of concerns about the quality of the work and fears that the project would not have been completed for the price stated in the contract. The court wrote: “The justification for the [owner’s] failure to make timely payments hinges on their assertions that the parties had a fixed-price contract and that the contract required written change orders.” Ultimately, the trial court and appellate court both concluded that the contract was not ambiguous and that it contained a cost-plus contract price, not a fixed contract price.
The owners also claimed on appeal that a contractor in a cost-plus contract has an additional fiduciary duty to a homeowner as a matter of law. The owners argued that a contractor must provide prompt, detailed accountings of the actual costs incurred and must inform the owner of potential cost overruns. The appellate court refused to find a special fiduciary duty of a builder under a cost-plus contract. Specifically, the court held that the contract between the owners and the contractor did not explicitly contain language creating any special fiduciary relationship and it was not going to impose such a duty on contractors as a matter of law.
So what? It goes without saying that in the world of construction contracts … words matter! There is language in the Goes decision that a cost-plus contract imposes upon the contractor an implied duty to incur reasonable and proper costs. However, the court went on to analyze the parties’ agreement as to what costs made up the “cost of the work” and whether certain documentation was required to support those costs. Construction documents like the AIA A103 and ConsensusDOC 235 contain much of contractual language that would impose such a duty upon the contractor—whether talking about reasonableness of cost or auditing and documentation supporting the costs.