Under Promise, Over Deliver: Sub Found Liable for False Updates

A Connecticut appellate court recently issued a reminder to contractors throughout the US that it is always better to “under promise and over deliver” when it comes to setting schedule expectations for customers on a project. As the court found that a subcontractor’s false promises to a general contractor about the status and delivery of materials on a project could constitute more than a breach – the statements were unfair and deceptive trade practices and subjected the subcontractor to significant liability.

The case of United Concrete Products, Inc. v. NJR Construction, LLC, et al., arose out of a bridge replacement project let by the Connecticut DOT in December 2015. The DOT awarded NJR the project. The prime contract included an incentive for reopening the roadway to traffic prior to project completion. NJR hired United as a subcontractor to provide some of the concrete elements for the project including ten prestressed deck beams for the bridge. NJR put United on notice of the bridge opening incentives (and disincentives) in NJR’s contract with the DOT.

In March 2016, NJR contacted United for input on the delivery schedule of the beams as well as the overall project schedule. United assured NJR that it stood ready to commence production of the beams. Based on this representation, NJR submitted its baseline schedule to the DOT with an August 31, 2016 completion date. Internally, NJR was confident it could reopen the route across the bridge to traffic in mid-July and take advantage of the incentive bonus.

NJR commenced work on the project in spring 2016. In May, NJR’s project manager emailed United’s vice-president about the pour schedule for the beams and was advised “[t]he prestress will be complete by [May 27, 2016] if all strip strengths are met each day.” Relying on this statement, NJR scheduled delivery of the beams for June 29, 2016. On June 13, 2016, NJR’s PM followed up with a United representative who assured him that the beams were ready for a dry fit test in preparation for the June 29, 2016 delivery. Nonetheless, two days before the scheduled delivery, United notified NJR that, in fact, none of the beams were ready. It later came to light that only three beams were cast as of the scheduled delivery date and all three had failed state inspection; United representatives had overpromised and not delivered at all. Ultimately, United delivered the beams a month late – which meant NJR forewent its entire incentive and incurred additional expenses and disincentive penalties from the DOT. At project closeout, NJR withheld a portion of United’s payment because of the delays and its lost incentive, and United filed suit to recover the balance on its invoices.

NJR counterclaimed for, among other things, violations of Connecticut’s Unfair and Deceptive Trade Practices statute based on United’s false statements about the status of the beams production and the resulting delays and lost incentive payment. The trial court and appellate court sided with NJR. The courts agreed that the deceptive conduct of United’s employees instructed NJR decisions on how to build out its schedule, and NJR was justified in relying upon United’s “unfounded assurances” and “false declaration[s].” United’s employees’ statements “were clearly immoral, unethical, and/ or unscrupulous” and impacted NJR’s plans, expenditures, and bottom line on the Project. The statements lulled NJR into a false sense of confidence about the likelihood of receiving the incentive and led NJR to make representations to the DOT that ultimately put “NJR’s [own] competency in a bad light.” This injured NJR and United was liable for the delays.

Connecticut’s Unfair and Deceptive Trade Practices statute is nearly identical to similar laws in states throughout the US including Alabama, the Carolinas, Tennessee, and Mississippi. In many of those states, the statutes also allow for punitive damages and attorneys’ fees. The risk of potential exposure for these types of casual schedule updates makes it critical that contractors communicate accurate and complete information to their clients.

This is particularly true in today’s environment when the bidding process is growing more competitive, there are less projects being built, and many contractors are wrestling with extended material lead times and workforce shortages. Such an environment can tempt contractors to commit to unrealistic milestones and delivery dates in order to win or hold onto work. However, these “false promises” could expose a contractor to significant liability. When in doubt, as a general rule contractors faced with delivering schedule information (good or bad) should: (1) regularly provide status updates about meeting milestones and potential delays; (2) ensure that all employees are delivering the same message about the status of work; and (3) be upfront with customers about any factors (internal or external) that may impact the schedule provided by the contractor. Ultimately, transparency on a project experiencing delays could help a contractor avoid additional liability.