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Contract Law & Materials

PennsylvaniaBack ChargesConstruction ContractNotice of Termination

My company is a small electrical subcontractor. We are running into some material procurement delays because our GC Customer has been slow to release payments. According to our contract, the GC has to provide us with a formal notice to cure any issues, with 72 hours of time, and up to another 48 hours on a contingent and discretionary basis. No formal notice to cure was provided, and 3 days later the GC purchased all of the outstanding materials, said they would be backcharging us for the cost, presumably plus a 15% administrative fee. This type of action wasn't stipulated in our contract documents, explicitly or otherwise. Now the GC wants us to essentially perform labor, at a loss. Is this legal? We should obviously contact a lawyer, but I'm looking to get a better feeling about the legality of these actions before doing so.

2 replies

Aug 31, 2021
Your instincts are correct. The ability for the GC to take this action is largely (although not exclusively) determined by the contract. If they were required to provide notice and did not do so, then that is likely an issue for them. You can likely make other arguments based on your contact, but it should be review by a lawyer to get a better sense - preferably an experienced construction lawyer. I might be able to help. Please feel free to give me a call or email me if you would like to discuss it further. jquinter@offitkurman.com; 484-531-1701
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Sep 1, 2021
The answer will depend on the terms of you contract. It sounds like from what your email says, that what the GC did was a breach of the terms of your contract. You therefore will have a claim against it if it attempts to withhold more than the amount in your contract for those materials. With respect to the labor, it sounds like you will still have an obligation to perform the labor (unless you can argue that the material back-charge is a material breach that eliminates your obligation to perform. Again, however, it would be necessary to review your entire contract to determine under what circumstances you have the right to suspend work or terminate the contract.
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