Tuesday, November 24, 2009

Avoid Alternative Equipment – Specifically Identify Manufacturer

A supplier of goods cannot unilaterally deliver substitute goods where the contract between the parties identifies a specific manufacturer. When a contract explicitly describes a specific manufacturer, attempted delivery of nonconforming goods may be considered a breach of contract. The Court will look to the terms of the contract to determine the intent of the parties.

The court will interpret and enforce the contract in accordance with the plain meaning of the words as given by a reasonable person. In Fox v. Wheeler Electric, Inc., 169 P.3d 875 (Wyo. 2007), the Wyoming Supreme Court interpreted that the district court did not err when it held that the parties’ “contract required equipment from one particular manufacturer” even though the Contract Specifications provided that other manufacturers’ equipment might be accepted.

An operating contractor for a Dept. of Energy laboratory sent electrical subcontractors a Request for Proposal to upgrade fire monitoring systems. The proposal package contained Construction Specifications that identified equipment manufactured by a company called Digitize. Wheeler Electric, an electrical subcontractor, submitted a proposal relying on quotes from Fox, doing business as Fibertection, a fire alarm equipment supplier. Wheeler provided Fibertection with a copy of the Construction Specifications for the project.

Fibertection submitted a bid to Wheeler that included language “in conformance with the plans and specifications.” Additionally, Fibertection submitted an alternative bid to provide similar equipment from an alternative manufacturer at a lower cost. Both bids submitted by Fibertection to Wheeler were significantly lower than its competitors. Wheeler used Fibertection's bids in its proposal to the operating contractor and submitted both bids in its proposals package. The operating contractor awarded Wheeler the contract but rejected the proposal with the alternative equipment, indicating that it preferred Digitize equipment. Wheeler then issued a purchase order to Fibertection requesting that Fibertection order the Digitize equipment.

After receiving the purchase order, Fibertection attempted to order the Digitize equipment, but learned that the only authorized dealer in the state was its competitor. Unable to obtain the Digitize equipment, Fibertection instead ordered equipment from a third manufacturer. Fibertection informed Wheeler that it would be supplying equipment for the project from a different alternative manufacturer. Fibertection asserted that this alternative equipment was in full compliance with the plans and construction specifications, and that it was equal to or better than the Digitize equipment. Fibertection produced documentation to support this assertion. Wheeler passed the documentation on to the contractor with a request that the operating contractor approve the use of the alternative equipment. The operating contractor informed Wheeler that there was not enough time to review the equipment from the alternative manufacturer without compromising the project schedule and reiterated that it required the Digitize equipment as listed in the Construction Specifications.

Wheeler informed Fibertection that the operating contractor rejected the alternative equipment and that Fibertection would have to provide the Digitize equipment per the Construction Specifications. However, Fibertection could not provide the equipment. Therefore, Wheeler had no choice but to obtain the Digitize equipment from Fibertection’s competitor at a price appreciably higher than the Fibertection bid.

Subsequently, Wheeler sued Fibertection for breach of contract and the difference between the price it paid for the Digitize equipment and the Fibertection bid. Fibertection argued that its contract with Wheeler allowed it to provide either Digitize equipment or equipment from another manufacturer if it met the technical requirements for the project.

The Court, when interpreting a contract, will focus on the intent of the parties forming the contract. The first step is to determine if the language of the contract is clear and unambiguous. If it is, the Court will determine the intent of the parties based solely on the language in the contract. The Court enforces the contract based on “the plain meaning its language would be given by a reasonable person.” Fibertection did not dispute the fact that the contract required it to furnish Digitize equipment. It asserted that the contract allowed it to supply any manufacturer’s equipment that met the technical requirements of the construction specifications. The Court, looking at the reasonable and plain meaning of the contract language, disagreed.

The first pages of the contract specifications stated that the subcontractor was to furnish, install, terminate and test “two Digitize 3505 control panels” and further identified Digitize software and a Digitize computer. The contract specifications also included the following language:

“Approved Equal: Whenever a product is specified by using a proprietary name, the name of a manufacturer, or vendor, the specific item mentioned shall be understood as establishing type, function, dimension, and quality desired. Other manufacturer's products will be accepted…, provided sufficient information is submitted…to demonstrate that products proposed are equivalent to those named.”

“Or Equal Material or Equipment Submittals: All “or equal” materials, equipment or systems shall be identified and submitted for approval as required by the Subcontractor Requirements Manual.”

The Court stated that “[t]he contract provisions…plainly provided that equipment from a manufacturer other than Digitize was subject to [operating contractor’s] approval. If it did not approve of alternative equipment, then Digitize equipment was required.” The Court determined that the word “desired” was not just a preference for the Digitize equipment but a requirement. The ability to approve or reject alternative equipment belonged to the operating contractor and not to Fibertection. Since the operating contractor did not agree to the alternative equipment or to any “or equal” equipment when forming the contract, Fibertection's failure to provide Digitize equipment constituted a breach of the contract.

Fibertection’s attempt to rely on Article 2 of the Uniform Commercial Code for the proposition that “[g]oods or conduct including any part of a performance are ‘conforming’ or conform to the contract when they are in accordance with the obligations under the contract” also failed. The Court reasoned that Fibertection “again ignores the provisions of the Construction Specifications that, as already discussed, required Digitize equipment.” The alternative equipment did not meet the obligations Fibertection agreed to under the contract, nor did it obtain the necessary approval to provide alternative equipment.

A supplier will not be allowed to provide alternative equipment where the clear and unambiguously expressed terms of a contract specifically identify a particular manufacturer. The court will determine the intent of the parties from the unambiguous language and enforce the contract based on the plain meaning of the words as given by a reasonable person.

When drafting a contract to a supplier for specific equipment:
1. State in clear and unambiguous language that the supplier is required to supply goods/services from a specific source;

2. Make it plain that the choice to approve or reject alternatives belongs to the contractor; and

3. Ensure that there is nothing in the contract language suggesting that the supplier is entitled to make a unilateral decision to substitute another product for the one specified.

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