Initiating the Turnaround
Legal Implications of Reversing Past Precedents
One should be mindful of relevant legal doctrines when seeking to realign the project. Parties’ practical construction of contract terms (sometimes referred to as “course of performance”) is typically given weight by courts to determine the parties’ understanding and application of specific contract terms or provisions. This is particularly the case where the contract is ambiguous; however, even where a contract is unambiguous, a party may assert that the course of performance effected a modification or change to the contract term in question.
To the extent that a construction manager seeks to revert to the express terms of the contract, they are advised to notify contractors of such intent and to specifically note that the contractor is expected to conform to the contract’s express terms, regardless of whether a prior course of performance had indicated a more relaxed standard of performance.
Providing Notice of Enforcement of Express Terms
While a party may be permitted to revert back the express terms of a contract, it is prudent for the requesting party to provide adequate notice of such intention.
Further, the party from whom modified behavior is sought should be afforded sufficient time to effect any necessary changes to its activities. (See Restatement (Second) of Contracts § 84(2) (“the condition is within the control of the promisee or beneficiary, the promisor can make his duty again subject to the condition by notifying the promisee or beneficiary of his intention to do so, if the notification is received while there is still a reasonable time to cause the condition to occur under the antecedent terms or an extension given by the promisor, and reinstatement of the requirement of the condition is not unjust because of a material change of position by the promise or beneficiary”); see also 13 Richard A. Lord, Williston on Contracts § 39:20 (4th ed. 2000) (“[u]nder general principles of contract law, a party who has made a waiver affecting an executory portion of a contract may retract the waiver by notifying the other party that strict performance of any termed waived will be required.”)
This is an 8-part series called Leveraging for Realignment: Best Practices for Troubled Projects, originally presented at CMAA National Conference.
Contributing authors: Shawn Paroline, SAIC; Mike Kenny, San Diego County Water Authority; Dan Fauchier, The Realignment Group; Jim Linthicum, San Diego Association of Governments; Chris Brasco, Watt, Tieder, Hoffar & Fitzgerald, LLP