Lumber prices have been on a roller coaster ride throughout the last year of effects stemming from the global COVID-19 pandemic.
Now, a $5.6 million legal dispute concerning the drastic rise in lumber expense between a wood supplier and general contractor on a delayed apartment complex in St. Peters, Missouri is bringing essential questions to the forefront over “locking-in-pricing” quotes for projects, especially during these turbulent times.
According to a court document filed earlier this month in Missouri, Mid-Rivers Development and Construction LLC — a Florida-based developer — is listed as the defendant in a complaint for a declaratory judgment from the plaintiff, Illinois’ Rehkemper & Son Inc. This complaint regards Rehkemper’s contractual obligation over the supply of lumber materials for the planned 33-acre The Reserve at Mid Rivers apartment complex at Mid River Mall Drive in the St. Louis suburb.
The suit alleges that around March 5 of 2020, both parties began discussions around the delivery of pre-paneled wood structures for the Reserve project, with Rehkemper sending Mid-Rivers a 30-day proposal and estimate for services.
That same day, Mid-Rivers reportedly returned a “Non-Binding Letter of Intent and Authorization to Proceed” to Rehkemper but did not approve the project’s commencement — and instead delayed the project for six months before resuming communications with the supplier in September 2020.
By then, lumber had already begun its drastic price increase — to now triple from where it stood around the project’s announcement. This became a key point of contention between the two businesses.
According to the complaint, after some proposals were rejected from Mid-Rivers — who wanted the cost of lumber to stay at the spot price they were at in March 2020 — the two parties later agreed to a revised Contingent Agreement proposed by Rehkemper, totaling $5,647,507 in market material cost. This proposal listed Mid-Rivers’ original desired completion date of March 25, 2022 — contingent on three provisions ensuring the contract consisted of a “mutually agreeable delivery schedule.”
This was after Mid-Rivers initially sent over a proposal agreement that referenced a delivery schedule for Rehkemper as Exhibit D, although nothing was attached — this was later characterized as intentional on Mid-Rivers’ part by Rehkemper’s legal counsel due to their belief there were no immediate plans to begin the project.
Delays on the project’s start later brought about communications in late winter of 2021: An exchange on February 12 (entered into the Complaint as Exhibit 2) between Mid-Rivers’ Neal Gordan and Rehkemper & Sons CEO Mike Rehkember resulted in Mid-Rivers rejecting a two-phase delivery schedule and rate proposal that involved delivering lumber for project’s first seven buildings at the original March 2020 rate, before a request to rebid on the remaining 17 buildings at a price more current to the market.
In that same correspondence, Mid-Rivers demanded that the two parties’ original contract — with March 2020’s material market prices as they were — be confirmed without proposing a schedule of their own.
Further correspondence into early March 2021 resulted in Mid-Rivers rejecting two proposals for delivery ensuring the desired March 25, 2022 completion date, bringing about Rehkemper to declare the Contingent Agreement null and void and submit this claim based on their reading that Mid-Rivers’s lack of a “product delivery schedule” is an essential term, which, if not met, is legal grounds for voiding in Missouri law.
According to construction attorney Alex Bennaroche, “Contracts in MO must have five certain things to be valid, one of them being “mutuality of agreement,” which requires mutual assent to the essential terms of the contract.”
“Any agreement that reserves an essential item for a ‘future determination’ is void,” Bennaroche commented. “What an ‘essential term’ of a contract depends on the circumstances. Their argument is that the product delivery schedule is an essential term for a construction contract — particularly on a larger, multi-phase projects.”
The future of market prices is never certain
While the rising cost of the essential material and its shortages and subsequent project delays stemming from it, most homeowners have largely been reluctantly accepting of the new normal of an added $20,000+ to the cost of a new, average single-family home, according to a March 2021 report from The National Association of Home Builders.
Although the multiple parties in domestic construction have been folding their arms and learning lessons in patience, this case highlights frustrations facing both a supplier and general contractor in a much larger, lucrative commercial project.
In the February 12, 2021 letter between Mid-Rivers’ Neal Gordan and Mike Rehkemper, Gordan stated that Mid-Rivers worked with Rehkemper over their reputation as being a “sophisticated company that buys ‘futures’… so this allows for [the subcontractor] to ‘lock in prices’ for our large projects and honor quoted prices through completion.”
Although the predictive futures market was an ideal measure of how to determine lumber prices in more stagnate times, no one could have predicted the amount of yo-yoing pricing that life with COVID-19 brought.
Housing starts have moved from 1.2 to 1.5 nationally on the backs of low mortgage rates and surplus checks, and the crisis level shortage of lumber in general has been cited as a key component for delays.
Ken Simonson with the Associated General Contractors of America stated, “I’m told that some of those mills are still struggling to get back to full employment because of the lingering effects of COVID or their workers or families, and so it’s really been a challenge for many industries including construction.”
A declaratory judgment is a legally binding, court-issued judgment that defines and outlines the rights and obligations of each party in a contract. This is done to prevent any further lawsuits that are likely to be unsuccessful should a key concept be arrived at in the judgment that would cost courts and its taxpayers valuable resources such as funds and time.
At time of reporting, n either Mid-Rivers nor Rehkemper responded to requests for comment.
All parties related to this matter have been sent their summons, and dates of later hearings have yet to be determined.