Virtually all contractors have encountered poorly written contracts that contain confusing or even contradictory provisions. Ideally, a contractor will have its attorney review a potential contract in advance of execution in order to minimize exposure to nonsensical clauses. In the event that a contractor enters into a contract that contains ambiguous language without first seeking guidance from counsel, however, its ability to argue for payment in the face of the ambiguity may rise or fall based upon whether the contract is private or public.
A "patent ambiguity" is one that either 1) would have been apparent to a reasonable prospective bidder from the facts available at the time of the bid, or 2) was in fact known to the contractor before it submitted its bid.
In New Jersey, as in most states, courts will generally construe ambiguities in private commercial construction contracts against the drafter and in favor of the party that did not draft the document.
This principal is flipped on its head in the scheme of public contracting. In the public domain, where a contractual ambiguity is "patent" and obvious (as opposed to "latent" and not readily apparent), the bidder has a legal duty to raise the ambiguity with the governing agency in advance of its bid. The bidder's failure to seek clarification in advance of its bid will bar the contractor's future claim for payment or relief based upon the ambiguity.
In a recent decision, Aspen Landscaping Contracting, Inc. v. Juliano Sons Contractors, Inc., the Appellate Division held that a contractor was not entitled to payment on its claim against a public entity because the contractor's claim was based upon a patent ambiguity regarding unit pricing for excavation materials. The Court held that the pricing discrepancies at issue were apparent at the time of the bid. Accordingly, it denied the contractor's claim, which was in excess of $600,000. The Court also denied the contractor's claim for relief on the basis of equity (fairness), holding that its attorneys failed to properly raise that issue on appeal.
In light of the significant exposure that contractors face when bidding on public projects, it is essential to have an experienced attorney review the contract documents and assist in identifying ambiguities prior to the time of bid. This is a minimal investment in light of the huge potential for monetary loss in the face of contractual ambiguities, which are not uncommon in these voluminous and often poorly written public contracts.
In the event that a contractor encounters a contractual ambiguity during the course of the performance of a project, it should immediately engage counsel in order to frame an argument for latent (and potentially recoverable) ambiguity as opposed to patent (and likely unrecoverable) ambiguity. An attorney may also be able to advance a strong argument for equitable relief, citing legal precedent that prohibits public entities from being unjustly enriched on the basis of their own drafting errors.
Daniella Gordon, Principal of the Gordon Law Firm, has years of experience negotiating and litigating disputes over provisions in public and private construction contracts. Daniella may be reached at (856) 316-4654.