Best Practices Construction Law : Construction Lawyer & Attorney : Matthew DeVries : Stites & Harbison Law Firm : Green Building & LEED Litigation

Last week, the Supreme Court of Tennessee heard oral arguments on a contract interpretation issue in a construction dispute between Ray Bell Construction and Tennessee Department of Transportation.  You can get the details here, but the real lesson is one about how to interpret contracts, whether you are talking about the scope of work, changes, compensation or delays.

The TDOT Dispute.  The disagreement in the the TDOT case involved a question whether the contractor was entitled to an early incentive payment given the delays on the project beyond the contractor's control.  There was a disagreement as to whether the completion date could be moved, altered or amended. The trial court held that there was an "egregious ambiguity" in the parties' contract and allowed extrinsic evidence, including evidence of other contracts, to clarify the issue. The Court of Appeals affirmed [pdf].  The final decision from the Tennessee "Supremes" is expected.

Another Example.  In construing a written contract, the controlling consideration is the intention of the parties as derived from all the terms of the contract. Legally, a written contract to which both parties have assented as a complete and accurate expression of their agreement, may not be varied or contradicted by understandings and negotiations, which occurred prior to signing the contract. Thus, as a general rule, a proposal by a contractor cannot be used to vary or contradict the signed contract.

If the contract is so ambiguous that its meaning is unclear, the court can allow parol or extrinsic evidence to be admitted. A contract is considered ambiguous "when it is reasonably susceptible to more than one meaning." As a result, if the contractor can show that the scope of work specified in the contract is ambiguous, then the contractor's proposal may be used as extrinsic evidence to explain the meaning of the contract.

Owners (such as TDOT in the case currently on appeal) often argue the language in the scope of work specified in the contract is readily apparent and, therefore, the contractor should not be permitted to introduce its proposal as evidence on the issue of ambiguity. However, a court may conditionally consider extrinsic evidence, including the proposal, for the purpose of determining whether a contract is ambiguous. If the signed contract is reasonably susceptible of two or more meanings, the courts would likely consider the public owner's interpretation of the scope of work and the contractor's proposal.

Who Can Help Interpret a Construction Contract?  Using the above two examples, the rules are pretty clear that the court must look only to the four corners of the contract to interpret its provisions. Only where there is an ambiguity can the court look to extrinsic or parol evidence, including other writings, conduct of the parties, and industry practice.

Image: jimmywayne

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I have my Google reader set to search various blogs, news sites, and Twitter feeds to help me keep current with the latest trends in the construction industry.  There remains one major problem: the words we use have different meanings for everyone.  

Take, for example, my search of Twitter feeds (above) for Building Information Modeling (BIM).  If you were to do the same search during a weekday morning, the majority of results would return various individuals involved in some aspect of the construction industry either praising or criticizing BIM. Now, if you were to do the same search on any given Friday or Saturday night, you might be surprised to get a varied assortment of results (and photographs) of individuals out for a night of partying.  You see, BIM is also slang for "bimbo" or ... how do I say this ... a "lady with questionable morals"? 

What's the lesson here?  Did you click on this article because you thought it related to LEED or Green Buildings?  It kinda does.  It kinda doesn't.  The lesson is that we live and work in a world where information spreads quickly.  In addition, we have become informal in our communications through the use of email, texting and Twitter.  (And in our personal lives, there may not be anything wrong with informality in our communications.)

However, the construction project is built on expectations and performance.  Where those expectations are accurately and correctly reduced to a writing, the parties have a written contract.  Where the parties use words that have different meanings (and both interpretations are reasonable), we now have an ambiguity.  A judge or arbitrator will then be asked to interpret that ambiguity based upon any number of legal tools (i.e., parties' words and conduct, other writings outside the four cornings of the contract, industry norms, etc.).  As the construction industry begins to employ new technologies, such as BIM, or new performance based goals, such as energy performance from a LEED certified building, then it becomes even more important that we use words that do not lead to miscommunication.

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