Articles

This is the second in a series of articles about contract law.

This month we will “dissect” an actual event a participant on CAPPO List experienced (we’ll call her Virginia). Having obtained Virginia’s permission, we will look at four questions that arose during the issuance of a construction change order. The contractual issues revolved around whether there existed a true offer and acceptance to change the scope of work to an existing contract.

Offer & Acceptance Definitions. Before applying the rules of “offer” and “acceptance,” we must first know how the terms are defined.

Section 24 of the Second Restatement Of Contracts, defines offer as:

In other words, A makes it clear to B that she wants to enter into a bargain, and B understands his acceptance of A’s offer will create a contract.

The facts. In a written communication, the contractor identified additional work outside the original Scope Of Work and provided a price for performing the work. The agency’s architect issued a bulletin instructing the contractor to perform the work. A change order was issued after the work was performed.

First question. Virginia’s first question was in essence; did the contractor make an offer when he communicated a price for the additional work? To answer it, let’s test it against the definition of an offer.

Did the contractor manifest a “willingness to enter into a bargain?” We are not certain because we were not privy to the communications between the contractor and the agency; however, the fact the contractor provided a price for the work indicates the contractor probably did manifest such intent.

Was the offer “made as to justify another person in understanding that his assent to that bargain is invited and will conclude it?” Again, we cannot be certain, but since the quantity of work to be done was specified (according to Virginia) and a price provided, the architect probably believed it was an offer that could be accepted.

The courts look for three key elements when distinguishing whether something is an offer. First, it looks for an unambiguous quantity. Second, it looks to see if the offer was addressed to a particular person, meaning it was not merely part of a general price list. Third, it looks for the terms “quote” or “offer.”

We do not know whether the contractor’s communication provided the words quote or offer, but somehow he managed to convey the work proposed for the amount stated. For that reason and because the other two elements were met, I think the contractor made an offer. Therefore, the answer to the first question is, “yes, Virginia, the contractor probably made an offer the agency was justified in accepting.”

Second question. Virginia’s second question was; did the agency’s architect provide an acceptance on behalf of the agency through his bulletin, by instructing the contractor to perform the work? Assuming the contractor made an offer in his proposal of additional work, we must look at whether the architect made a legitimate acceptance.

As stated above, the basic definition of “acceptance” is consent to the terms of an offer, which consent creates a contract.² Because construction work is a service, which is governed by the Second Restatement of Contracts and the Common Law, the rule is; acceptance must be a “mirror image” of the offer. This means the acceptance cannot change the offer.

The facts state the architect issued a bulletin directing the contractor to begin work. We do not know whether the bulletin was a mirror image of the offer. If it were a mirror image, it would have been an acceptance provided the architect was authorized by the agency to make such acceptance. Virginia provided more facts and questions that further muddied the waters.

The agency’s governing board issued a Ratification Change Order that contained the following:

“This Change Order is not valid until signed by both the Architect and the Assistant Superintendent/Chief Financial Officer of Business Services. Upon approval of this Change Order, the provisions herein for adjustment of compensation and/or time shall constitute mutual accord and full satisfaction with respect to all impacts disruptions, delays or costs, including without limitation, any home office overhead, whatsoever related to the change specified herein.”

I believe the real issue is: Was the contract for additional work formed by the architect’s bulletin, or was it formed by the subsequent issuance of the governing body’s Ratification Change Order?

Upon receipt of the Ratification Change Order, the contractor struck out:

And added:

If the Change Order was a counteroffer, the contractor had the power to accept or reject it, but not to change it. Remember, a counteroffer is just another offer that also requires a mirror image acceptance. The Contractor did not make a mirror image acceptance. Instead, by changing the Change Order (aka counteroffer), the Contractor rejected the counteroffer and made his own counteroffer, which the agency could reject or accept.

Third question. Virginia’s third question was; by making a change to the Change Order, did the contractor make an offer to change the terms and conditions of the Change Order? My answer is (using all the assumptions above); by making a change to the Change Order, the contractor rejected the agency’s Change Order (aka its counteroffer) and made his own counteroffer.

Fourth question. Virginia’s fourth question was; by signing the Change Order, was the [agency] accepting the changed terms and conditions? My answer is (if all of the above assumptions are correct), yes, when the agency accepted the Contractor’s alterations to the Change Order, it was accepting the Contractor’s counteroffer and forming a contract for the additional work.

As a side note, if the Contractor had merely asked for more money without offering additional services, there would have been no “consideration” (that which each party gives up in the bargain) and thus nothing to sustain a contractual change.

If you have hung in there with me to the end of this involved analysis, you now know what a law school exam in “Contracts” looks like. “Virginia” could easily get a job writing essay questions for law school exams!

That’s it for now. If you have questions or comments about this article, please address them to the Editor of CAPPO News who will forward them to me for response in the next newsletter.

¹ There are numerous ways to accept an offer, which can be found in the Second Restatement of Contracts. For our purposes here, Barron’s provided a suitable, concise definition.
² Barron’s 3rd Edition Law Dictionary, Steven H. Gifis, 1991 Barron’s Educational Series, Inc.

Copyright © 2004 by Karen Theriault, Esq., C.P.M.