November/December (Issue 6) News and analysis for construction professionals, including architects, engineers, product manufacturers, owners, contractors, insurers and sureties. To read about our services click here.

Court of Appeals Warns -- Want to Get Paid? Comply with Contract Terms!

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Storms, Inc. v. Mathy Const. Co., 2015 WL 7693550 (Minn. App. Nov. 30, 2015)

The Minnesota Court of Appeals recently issued an opinion that is important to all contractors to understand, if they want to get full payment on a project. The Court's decision gave a very clear instruction to all parties on a construction project - follow the terms of the contract. Failure to comply with all terms will impact your ability to get paid.

In this new case, Mathy Construction Company solicited bids from subcontractors in response to a MNDOT solicitation for bids for a road-repair project. In doing so, Mathy provided these subcontractors with MNDOT's statement of estimated quantities, identifying amounts of materials needed to perform certain aspects of the project. Storms submitted a bid to Mathy based on the MNDOT statement of estimated quantities and won the bid. Mathy secured the MNDOT contract. Storms and Mathy then entered into a subcontract.

The road-repair project was completed in August 2011, and in May 2012, in response to a request by Mathy seeking payment, MNDOT issued a change order reducing the amount owed to Mathy by MNDOT. The reason for issuing the change order was that the planned quantity amounts for the project exceeded the actual amounts necessary to complete the project. Storms sought payment from Mathy, which refused to pay because of the change order and subsequent reduction in payment from MNDOT. Storms brought suit against Mathy, arguing that it was entitled to payment of the full subcontract amount because the change order came outside the time period prescribed by MNDOT specification 1402 (allowing MNDOT to change the details of the project at any time during the progress of the work).

The district court found that Mathy breached its contract by not making modifications to the plan during the progress of the work. The court then held a hearing on damages only. At this hearing, the court concluded that Storms was not entitled to any payment under the contract because a MNDOT representative testified at the hearing that 1402 only applies to situations of unforeseen or significant changes and therefore did not apply in this situation.

This opinion by the court of appeals reverses that district court opinion denying Storms damages for breach of the subcontract. The court of appeals determined that the language of the subcontract clearly indicated that "any changes made to the project must be made during the progress of the work because the [subcontract] language indicates that when the change is made, there is still work left to be completed." The court concluded that MNDOT's change order, issued nine months after completion of the project, was not valid under the subcontract agreement. Storms was therefore entitled to damages for breach of the subcontract.

Overall, this opinion warns contractors that: (1) the Court will uphold the terms of your contract agreements; and (2) in order to get paid, contractors should comply with all contract terms.

Case Law Update

By Julia Nierengarten

Contech Engineered Solutions, LLC v. Element Materials Technology St. Paul, Inc.

This is a District of Minnesota opinion considering the applicability of Minnesota's two-year statute of limitations on claims arising from improvements to real property. Contech designs and constructs pedestrian bridge trusses. Element is an engineering consulting firm that offers inspection and testing services. In connection with a contract to design and construct a pedestrian bridge in Michigan, Contech engaged Element's services to inspect the bridge's parts at Contech's Alexandria, Minnesota facility. Element found no defects at that inspection. Later, after the parts reached their final destination, a subsequent test revealed several alleged defects previously unnoted by Element. Contech ultimately paid nearly $300,000 to remedy the defects.

Contech then brought breach of contract, negligence, and professional negligence claims against Element. Element sought dismissal under Minn. Stat. § 541.051, which requires a plaintiff to bring claims arising from improvements to real property within two years of discovery of the injury. Contech brought its claims three years after the discovery of the alleged defects. The court found that Contech's claims were barred because, as a provider of "inspection services," Element falls into the class of parties intended for protection under § 541.051 even though "inspection" is not explicitly listed in the statute.

Builders Association of the Twin Cities v. Minnesota Department of Labor and Industry

This is a Minnesota Court of Appeals opinion upholding the Energy Code enacted on February 14, 2015 and declaring the Sprinkler Rule invalid. The court considered a challenge to the Sprinkler Rule amendment in the Minnesota Residential Code that required the installation of sprinkler systems in all newly constructed townhouses and one- and two-family dwellings, with an exception for one-family dwellings under 4,500 square feet. The petitioner challenged the Sprinkler Rule, arguing that it violated substantive due process, was adopted in excess of the respondent's statutory authority, and was adopted without compliance with rulemaking procedures.

The court agreed with petitioner that the Sprinkler Rule violates substantive due process. The court's basis for this opinion was the arbitrary and unsupported reasons for including an exception for one-family dwellings under 4,500 square feet. The court explained that the model rule required sprinklers in all dwellings, adopted in phases over several years, and that departmental representatives testified at hearings that they recommended requiring sprinklers in all dwellings. The court concluded that the "record does not contain a reasoned explanation as to how the department determined that an indefinite exception for one-family dwellings under 4,500 square feet provided [the] appropriate balance" between various considerations in implementing new codes.