Many subcontractors assume that the oral promise of a general contractor to enter into a contract at some future point can be enforced against the contractor when they have submitted a proposal that the contractor incorporated into its bid. However, as illustrated by the case of Trident Construction Co. Inc. v. The Austin Co., 272 F. Supp. 2d 566 (D.S.C. 2003), such a promise may not be worth the paper it's not written on.
In Trident, a GC, a steel erection subcontractor, and a steel supplier met to discuss working together to obtain a Navy contract for the construction of an airplane hangar.
The subcontractor claimed that an agreement was forged in which the three parties agreed to join together exclusively as a team to pursue the project, and that, if the GC received the prime contract from the Navy, the subcontractor would receive the subcontract and the supplier would be the material supplier. Over the next several months, the subcontractor submitted several proposals to the GC, who requested various changes. The GC was awarded the prime contract based on its bid, which included the subcontractor's proposal to erect the hangar.
While the GC used the subcontractor's proposal in its bid, it intended all along to put the subcontract up for competitive bidding in hopes of obtaining a less-expensive proposal. After it was awarded the prime contract, the GC solicited other bids while at the same time continuing to negotiate with the subcontractor, even sending the subcontractor a proposed written contract.
When the subcontractor heard rumors that the GC was soliciting other bids, it contacted the GC who denied the rumors and confirmed that the parties were still a team. But the GC entered into a subcontract with a different entity. The subcontractor sued the GC for breach of contract, promissory estoppel, and unjust enrichment.
The court's decision
The court awarded summary judgment to the GC. The court found no enforceable verbal contract between the GC and subcontractor that could have been breached. Although the alleged contract was for both goods (steel materials) and services (steel erection), the court held that the predominant factor was the provision of goods. That meant the contract was subject to the Uniform Commercial Code and its provision that contracts for the sale of $500 or more in goods are unenforceable unless evidenced by a writing and signed by the party against whom enforcement of the contract is sought.
Finding no such signed writing, the court deemed the contract unenforceable. The court also concluded that there was insufficient evidence of a binding verbal contract. Rather, the parties' agreement was merely an "agreement to agree" and was too indefinite in its terms, due to its lack of an agreed price, to be enforceable as a contract. Thus, Trident stands for the principle that agreements to agree, such as a verbal agreement between a GC and a subcontractor to enter into a subcontract if the GC wins the prime contract, may not be enforceable as contracts.
So subcontractors should consider seeking a letter of intent or some other written, signed agreement from the GCs that they will receive the subcontract if the GC's bid prevails.
Gerald I. Katz is an attorney specializing in construction law with Katz & Stone LLP, Suite 600, 8230 Leesburg Pike, VA 22182.