Back Charges Must be Reasonable

Younger-Holmes Electrical Contractors, Inc. v. BE&K Building Group, LLC,
2010 U.S. Dist. Lexis 128559 (D. Okla. Dec. 3, 2010).

In this case, BE&K (GC) hired Younger-Holmes (Sub) to provide electrical work on a medical center construction project.  Sub fell behind schedule in performing its contracted duties, so GC provided it with notification of default and three days time to cure.  GC eventually hired another subcontractor to work with Sub to finish the project on time.

Sub later filed suit against GC after receiving $277,000 in back charges for the supplemental subcontractor. Sub claimed GC breached the parties’ contract by failing to act reasonably and in good faith in declaring default and back-charging Sub.

The court determined that GC’s actions in issuing the default letter were proper because Sub failed to provide adequate manpower to keep up with the construction schedule and finish the job on time.  GC was only required by the subcontract to grant two days to cure after issuing the default letter, but GC actually gave Sub additional time before calling in the supplemental subcontractor.

However, the court did find that GC acted in bad faith in regard to the back charges.  The court found that $82,000 of the $277,000 charges were unreasonable and often inexplicable.  Some of these charges included charges for miscellaneous fees, personal items, equipment not expendable on the job, first-class airfare, and per diem charges for in state workers.  In addition, many charges were unexplained or duplicated.  Because GC had a duty of good faith and fair dealing based on its contract with Sub, it impliedly owed Sub a duty to minimize costs.

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