Price Credit For Deleted Work

Q. When a credit is due to an owner because a scope of work is
deleted from the contract, is the owner legally bound by the subcontract
agreement amount executed between the prime contractor and subcontractor
for the deleted work that was to be performed primarily by the
subcontractor?

Background: The owner directed the prime contractor to delete some work
that was to be performed by prime contractor's subcontractor. The
prime contractor executed a Subcontract Agreement with their
subcontractor to perform the work. When they were directed to delete
the work the owner asked the prime contractor to submit a credit cost
proposal. The prime contractor submitted their cost based on the amount
agreed upon in the subcontract agreement. However, the owner's estimate
was much higher than the contractor's cost price. At the negotiations
the contractor claimed that the owner is bound by the terms and
conditions laid out in the subcontract agreement. Federal courts have
ruled that a credit due to the owner should be based on what the cost
would have been if the work was performed and not what the contractor
originally bid. Is the owner bound by that Agreement or should
the credit to the Owner be based on what the cost would have been
if the work was performed?

 

A. The FTA Best Practices Procurement Manual (BPPM), section 9.2.3.3 - Pricing of Construction Changes, agrees with your position that the credit should be based on what the work would have cost to perform, not the amount in the bid. The BPPM is available online: http://www.fta.dot.gov/12831_6192.html

There is no privity of contract between the owner and the subcontractor. Therefore, whatever agreement was reached between those two parties is no consequence to the owner. (Posted: January, 2012)