Every contractor has bid a job or signed a contract and realized after the fact that something is different at the project that makes it less profitable or even a loss. Whether its the result of a mistake in the bidding process or a hidden flaw in the property, the results can be the same and a good project can turn bad quickly if it is not dealt with properly.
Recently, Florida’s Eleventh Judicial Circuit Court in Miami-Dade County had the opportunity to analyze just such a problem encountered by a pool contractor. In Davoodabadi v. Swimming Pools of Florida, a homeowner and contractor entered into a contract to build a swimming pool. The contract included details regarding the pool, including plans and a description of the size, depth, thickness of concrete walls, and total price. The contract also included the following provisions:
It is expressly understood and agreed that the parties have established no contingent allowance for the elimination of much and/or water which cannot be found prior to excavation, but which must be eliminated prior to construction. Upon discovery, the Contractor shall notify Owner, and within seventy two (72) hours thereafter, Owner shall have either caused the completed elimination of the condition(s) in a manner satisfactory to the Contractor, and at Owner’s expense, or call upon the Contractor to eliminate same, again, at Owner’s expense. If so requested, or if owner has not himself completed the work, the Contractor shall perform or complete the work as the case may be in any case in which the Contractor performs or completes the underground de-watering or de-mucking. Owner shall pay the Contractor for same are retail sales within five (5) days from the date on which Owner is rendered a statement therefore. The Owner is responsible for disconnecting, capping, and re-routing sprinkler system around the pool. Any damages caused by this system connected, will be at Owner expense.
Owner may cancel this contract within seventy-two hours of its execution by sending notice to Swimming Pools of Florida, Inc. by registered mail, return receipt requested. Week-ends and national holidays do not count as part of the cancellation period. Upon receipt of such notice, Swimming Pools of Florida shall immediately refund the full amount of any deposit received. Deposits are not subject to refund following expiration of the seventy-two hour period allowed for cancellation or when contract was not the result of a home solicitation sale. Since site conditions vary and may impede construction or permitting, Swimming Pools of Florida reserves the right to cancel prior to the start of construction, following an inspection at the jobsite by Construction Manager. Should Contractor elect to cancel this contract, all money paid by the Owner shall be immediately refunded, in which case this contract shall be deemed null and void and all parties shall be relieved and discharged of any and all further responsibility.
The plans and contract were also based on a survey of the property, which revealed that the property was in a flood zone. The homeowner paid the contractor a deposit of $5,280.00 based on this contract.
Over a month later, the contractor realized that it had not taken into account that the property was in a flood zone. This resulted in needing concrete with a thickness of 15 inches, rather than the 8 inches called for in the contract. Contractor contacted the homeowner and indicate that it would need an additional $3,500 to construct the pool. The homeowner refused.
Two weeks later, the contractor sent a change order to the homeowner seeking $3,000 for additional concrete and steel based on hydrostatic uplift calculations. Again, the homeowner refused, and the contractor refused to proceed without the signed change order.
A month later the homeowner sent a letter requesting that the contract be cancelled because no work had started and requesting a refund of the $5,280.00 deposit. The contract responding by offering to refund $1,158.35 after deducting engineering, architectural, and administrative fees. Six months later the homeowner sued to recover the down payment.
Following trial, the trial court entered judgment in favor of the contractor, finding that the discovery of the flood zone and the de-watering/de-mucking provision of the contract allowed the contractor to require the change order for the additional work.
On appeal, the appellate court reversed the trial court. First, the appellate court found that the the contractor should have known about the flood zone status of the property before bidding and signing the contract due to the language on the survey and the ease with which flood zone status can be verified online. Second the appellate court found that the additional charges did not fit within the de-watering clause of the contract because the contractor did no investigation of the property and made no determination that de-watering or de-mucking would be necessary. Further, the proposed change order made no reference to these conditions.
Finally, the appellate court found that the contractor had attempted to change the terms of the contract by requesting additional money to which it was not entitled, effectively cancelling the contract, requiring a refund of the deposit pursuant to the cancellation clause. Accordingly, the appellate court remanded the opinion for the entry of judgment in favor of the homeowner.
There are several key takeaways from this opinion. First, if your changed site conditions or hidden site conditions clause in your contract only relates to a few, specific conditions, then those are the only conditions that entitle you to take advantage of that provision. Otherwise, you are limited to normal methods of cancellation.
Second, it is very common for contractors and homeowners to seek change orders based on new information or changed opinions. In this case though, the court interpreted that common practice to be a de-facto cancellation of the contract, requiring a full refund of the deposit pursuant to the cancellation clause. Thus, be very careful in suggesting or demanding changes so that you do not become accused of improperly terminating a contract.
Finally, its important to have the right information to support any requested changes to a contract. Here, if the contractor had done an investigation of the site, it could have located the need for de-watering and preserved its ability to seek a change order. But because it did not, its demand fell under the cancellation clause and the contractor was required to refund the deposit. A little investigation could have saved a lot of money and time spent in litigation.