The New Jersey Superior Court recently issued an opinion that serves as a cautionary tale for all parties in a construction project who perform work without complete, signed copies of their contracts on hand. In the case of City of Union City v. AC Construction Corp., the Court addresses the dangers to parties who proceed with construction work when the terms of their contract are ambiguous, unidentified, and in draft – not final – form.
In reality, many contractors, eager to meet tight schedules and start a project, proceed with the work without signing their contracts or having complete copies of all of the documents that make up the contract. The danger of this is that if a dispute arises over issues such as the quality or scope of work, the situation is made much worse by the lack of a signed contract that clearly identifies and attaches every document that makes up the agreement.
Background of the Case
The Union City case involved the construction of an amphitheater. During the course of construction, AC Construction Corp. (AC), the contractor, encountered contaminated soil at the project site that required significant remediation. A dispute arose between Union City and AC regarding the excess costs of the soil remediation.
Union City and AC could not agree to the terms of their contract or even what documents comprised their agreement. Specifically, the parties could not agree as to what the dispute resolution procedures in the contract actually provided for – litigation or arbitration. In litigation, Union City’s preference, the parties would appear before a judge or jury in a court of law. In arbitration, AC’s preference, disputes would be resolved by an individual or panel of selected arbitrators, some of whom could be experts in construction. Since the contract was unclear, the parties were forced to litigate the question of which dispute resolution procedure applied – litigation or arbitration – rather than litigate the main dispute – contaminated soil remediation.
The Court concluded that AC not only failed to satisfy its burden of proving that the parties agreed to arbitrate – not litigate – any dispute, but that the contractor also failed to establish what documents actually made up the contract agreement itself. The Court concluded that a “significant factual dispute existed” with regard to the precise terms of the agreement between Union City and AC, and remanded the case for further proceedings, pointing to the absence of a signed contract that attached and incorporated all documents. The Court also found it significant that some of the documents were marked “draft” not final. In the end, the contractor in Union City remains in limbo. AC will be forced to participate in additional proceedings about the dispute resolution issue while the heart of the dispute – soil contamination and remediation – remains unresolved.
Outcome of the Union City Case
This decision illustrates the dangers of sloppy contracting. All parties – owners, contractors and subcontractors – must thoroughly review and understand what documents comprise their contracts and ensure that all parties sign any agreements before work begins. The Union City case makes clear that when a dispute occurs, parties who understand the force and effect of their agreements are much better equipped to defend and ultimately resolve disputed issues than those who fail to sign and retain complete copies of their contracts. Although this case dealt with the dispute resolution clause of the parties’ agreement, a similar, unfortunate outcome could result with many of the other provisions typically contained in a construction contract.