Contractor has a Duty to Seek Clarification of Ambiguous Terms

A contractor who fails to seek clarification of the meaning of ambiguous contract terms prior to the submission of its bid may be bound by the owner's reasonable interpretation of those terms. The case of Delicacies Constr. Co., Inc. v. City of New York, 2005 NY Slip Op 25321, 1 (N.Y. Misc. 2005) illustrates this proposition.

Here, the contractor was the winning bidder for a public improvement construction project involving the replacement of a pedestrian bridge in New York City. The contract consisted of various documents — including the Proposal for Bids, the Contractor's Bid, Technical Specifications and the Agreement. The project was substantially completed, and the contractor's claim accrued on May 31, 1999. However, the contractor brought suit against the city on October 21, 2004.

In its claim, the contractor asserted that it supplied additional labor, materials, equipment and services pursuant to the contract. As such, the contractor believed it was entitled to an equitable adjustment, and claimed that the city's failure to compensate it for the additional work constituted a breach of contract. The contractor argued that the city failed to design, administer and manage the construction project properly. As a result of the city's aforementioned failures, it took the contractor an additional four years (along with the requisite additional costs and expenses) to complete the project.

In response, the city argued that the contractor's claims were foreclosed by the statute of limitations contained in the contract documents. The city alerted the court to Article 53 of the agreement which required a claim to be brought within four months after the accrual of the claim. The contractor argued that because its claims for delay damages were based upon the contract and not specifically the agreement — the four-month statute of limitations contained in Article 53 of the agreement was to be applied to "claims based on this Agreement" — the four-month statute of limitations did not apply.

The court disagreed with the contractor's argument. The court observed that Article 1 of Chapter 1 of the agreement did not readily distinguish between the terms "Contract" and "Agreement." In fact, that the terms were used interchangeably throughout the entire contract and within the agreement section itself. As a result, the court interpreted the statue of limitations provision contained in Article 53 of the agreement to apply to both the claims based upon the contract and the agreement. To the extent there was some ambiguity caused by the term "Agreement" in Article 53, there was an additional contractual requirement that the contractor request clarification of such ambiguities. The court found that the contractor failed to clarify the meaning of the contractual language it claimed was ambiguous before submitting its bid; thus, it was bound by the City's reasonable interpretation of Article 53. As a result, the court ruled the contractor's claims were time-barred because the contractor waited more than five years to bring suit against the city after its claims accrued in May 1999.

This case illustrates that contractors must be aware of ambiguities in contract language. Contractors must resolve such ambiguities prior to submitting their bids, or risk being held to the project owner's interpretation of the ambiguous language.

Gerald I. Katz is an attorney specializing in construction law throughout the United States with Katz & Stone LLP, Suite 600, 8230 Leesburg Pike, VA 22182.

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