This applies to general contractors, subcontractors, and suppliers. Each can be the party preparing and transmitting a form of purchase order or (sub)contract or the party receiving the form and obligated to respond timely with agreement/performance or disagreement.
This happens every single day when a typical negotiation begins with a proposal, estimate, or bid from one party to the other. Next, an oral or informal written discussion occurs between the parties and terms are orally or informally agreed. At this point, the proposal, estimate, or bid may be marked-up. But, the negotiation is often not over and the agreement is not yet final.
After the proposal is marked-up, one party transmits a written P.O. or (sub)contract to the other. The proposal terms are not identical to the P.O. terms or (sub)contract. Among businesses, the receiving party must review and respond within ten (10) days. Failure by the receiving party to respond or commencing performance generally obligates the receiving party to the P.O. or (sub)contract terms.
The point is: review what you receive and make sure you agree or notify the other party that you disagree before beginning performance. Otherwise, you are probably bound to the terms of the other party’s form, which you did not write or prepare and which are probably not in your favor.
In the case of U.S. f/u/b/o San Benito Supply v. KISAQ-RQ 8A 2 JV, (U.S. Dist. Ct., N.D. California, Jan. 28, 2015), the lower-tier supplier was bound to the subcontractor’s purchase order when the supplier failed to disagree. In that case, the supplier was obligated to provide a mix design for 6000 psi concrete for a USACOE project at Fort Hunter Liggett in California.
The supplier’s proposal included the statement, “Quality Assurance program by others.” By this statement, the supplier argued the subcontractor was obligated to ensure the mix design was adequate. (The specifications were for performance, not design.) However, the subcontractor’s purchase order (the later document in the negotiation) included no such language. Although the supplier never signed and returned the subcontractor’s purchase order, the supplier did not inform the subcontractor of its disagreement instead commencing performance.
What began as the supplier’s Miller Act Claim for non-payment ended with the supplier paying for its defective concrete mix design, which was discovered after placement.
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Jonathan J. Straw
Partner | KraftsonCaudle.com
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