Review the Terms and Conditions of Purchase Orders- They Could be Important!

English: Wordy terms and conditions of stay fo...
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There are many moving parts on a commercial construction project. These range from site surveys to weather events to ordering materials. On most large construction projects, the prime contract and subcontracts are generally drafted ahead of time and hopefully reviewed by both in house personnel and an experienced construction attorney. However, there are situations, particularly where the contract may be one for service or provision of materials where individual purchase orders are issued as opposed to what would likely be looked at as a long form subcontract.

A case out of the Eastern District of Virginia serves as a reminder that these Terms and Conditions can create binding obligations and should be carefully reviewed and objections or changes made to them if you don’t want a court to hold you to them. In Quality Plus Services, Inc. v. AGY Aiken LLC, the Court considered both a course of conduct between the parties and the terms and conditions of the purchase orders presented by AGY Aiken LLC to Quality Plus Services, Inc. (QPS). The basic facts of this matter are that AGY owned and operated a plant in South Carolina that required maintenance. It contracted with QPS to perform this maintenance on a purchase order basis. These purchase orders had Terms and Conditions attached to them. The course of conduct for 19 of these purchase orders was that AGY would send a purchase order to QPS, QPS would do the work, then QPS would send an invoice. In none of these 19 instances did QPS provide comments to the purchase orders or raise objections to the terms and conditions. A key point is that the Terms and Conditions included a mandatory arbitration clause.

A payment dispute arose and QPS sued to collect on 3 of the 19 invoices that were allegedly unpaid. After removal to Federal Court on diversity grounds, AGY moved to dismiss and to compel arbitration. After looking at the course of conduct and the terms and conditions of the purchase orders, the Court granted the motion to compel arbitration and dismissed the matter without prejudice stating:

Indeed, a contract may arise from the parties’ conduct. Here, the record plainly reflects that, on nineteen different occasions: (1) AGY emailed QPS its Terms and Conditions in the same email as the purchase order; (2) QPS did not object to the Terms and Conditions or discuss them in any way; and, (3) QPS then issued an invoice to AGY. At a minimum, under these circumstances, the Court finds that the Terms and Conditions applied to the agreement between AGY and QPS by implication. Accordingly, the Court finds that the parties agreed to the Arbitration Clause.

The lesson? Always review terms and conditions along with all documents that are exchanged. While it is tempting not to read the fine print, this fine print can and will be used against you later.

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