Contractors often attempt to resolve disputes or changes with the owner during the project rather than waiting until the work is finished. This approach has merit, particularly when the owner has directed a change to the contract that still requires the contractor's performance.

Resolution of the change, however, should be accomplished through a written agreement between the owner and the contractor. While this seems obvious, a written document is just the first step. The document must develop an enforceable agreement between the parties and include the material terms of the deal.

In most cases, the contractor will simply receive an adjustment to the contract price for a compensable change. But if the owner proposes a future contract opportunity as compensation for the change, the agreement must contain more than a promise to negotiate a future contract with the contractor.

If you are negotiating a nonstandard change order or modification, be certain to consult an attorney. Last year, in a memorandum opinion, the San Antonio Court of Appeals addressed such a case in K.P. Meiring Construction Inc. v. La Quinta Inns Inc.
K.P. Meiring was under contract to La Quinta to build a hotel when the project was delayed then accelerated under a written agreement, which included the following language: "[i]n either case, La Quinta agrees to negotiate a future project with K.P. Meiring Construction Inc."

The agreement expressly ordered the accelerated completion date. K.P. Meiring argued that it agreed to an earlier completion date in exchange for La Quinta's promise to negotiate a future project and that the contractor incurred damages because its principal offer was forced to suspend his bidding activities and supervision of other projects. Other damages cited with regard to the acceleration order included personnel, labor and materials expenses and lost business opportunities.

At trial, K.P. Meiring sought to enforce La Quinta's promise to negotiate a future project. It also sought damages for negligent misrepresentation and fraud. K.P. Meiring appealed the trial court's grant of summary judgment denying K.P. Meiring's tort claims as well as its claim associated with the breach of La Quinta's promise to negotiate a future project.

The Court of Appeals upheld the trial court's determination that La Quinta's promise was too indefinite to enforce a breach of contract claim. It found that the agreement to negotiate a future project was simply an agreement to agree and therefore not enforceable.

Under Texas law, an agreement to make a future contract is enforceable only if it is specific in all essential terms. In short, a proposed agreement cannot leave the resolution of material terms to future negotiations. As was the case with La Quinta, it is often difficult, if not impossible, to determine obligations with regard to a promise to negotiate a future project. Specifically, the court noted that the agreement left material terms open for future negotiations, including, without limitation, the amount of the contractor's profit for the future project.

The court affirmed the trial court's judgment as to all claims except K.P. Meiring's fraud and negligent misrepresentation claims. While it reversed the trial court's decision on the fraud and negligent misrepresentation claims, it did so only for the damages associated with La Quinta's promise to negotiate a future project.

In remanding these issues, the trial court would be free to investigate possible misrepresentations made by La Quinta to induce K.P. Meiring to enter into the agreement, not simply regarding the promise to negotiate a future project. Ultimately, because the promise was too indefinite and vague, the court rejected K.P. Meiring's attempt to enforce it.

The lesson for Texas contractors is clear. If the terms of the deal involve nonmonetary compensation, be sure to memorialize the essential terms of the "in-kind" compensation. In K.P. Meiring's case, the court focused on the agreement's failure to identify the amount of the contractor's profit for the promised future deal. It did not suggest that this was the only material term missing.