Editor’s Opinion Ed Ballam
I learned of a new term recently that could have ramifications for how the fire industry does business in this new age of inflation and supply chain issues.
A legal term called “commercial impracticability” recently entered my lexicon. It’s something I never heard about before, but boy is it interesting. Essentially, it’s like an escape clause that says if something unexpected goes wrong and it’s impractical to meet the terms of a contract, it can be broken and both parties can walk away with little or no penalty.
It first came to me in the context of a feud between a little town and a well-known fire apparatus builder this summer. Essentially, the truck builder—in this case, an aerial—told the little town that it would have to pay more than the contracted price because there were exponential cost increases and labor issues the builder couldn’t possibly have predicted. I don’t want to say the names of the parties involved because I don’t want to cast blame or cloud the issues that are much bigger than just the two parties involved.
To make a long story short, the aerial builder wanted an additional $200,000 for an aerial it had contracted to build a year ago and was expected to deliver this fall. The builder blamed huge cost increases in parts and materials, labor shortages, and supply chain issues for the cost overrun.
The little town was flummoxed. It had contracted with the builder and paid the money upfront to get a discount on the truck. Now, it was being asked to cough up more money or the builder would stop building the truck and give the little town back its money plus a little interest for the trouble. It would cost the builder less to do that than take the hit and build the truck at a huge loss.
At a meeting with the little town’s selectboard, the representatives of the taxpayers, the aerial builder invoked the term “commercial impracticability,” a term he was told to use by the company’s lawyers. The company representative said he had traveled to many municipalities across the country with essentially the same speech. He said if the company was forced to build all the trucks at a loss, it would likely be out of business by year’s end.
The selectboard members asked pointed questions about how it could happen and told the company representative the townspeople approved of only so much money for the fire truck and the contract was entered into in good faith. The board didn’t make any decisions that night but, at a subsequent meeting, the town manager said the town’s lawyer sent the aerial builder a letter demanding the truck be built for the contracted price or the little town would take the builder to court.
It seems like a reasonable position but, as of press time, there’s no indication about who prevailed, the town or the builder.
The scenario brings up a lot of issues and a lot of questions. While I am not a lawyer and don’t pretend to be one, there are many good resources out there to help with legal questions. Some research shows the legal doctrine of commercial impracticability is real, and it means that a contract cannot be accomplished because of unforeseen circumstances that make it impossible or extremely difficult to fulfill the terms of a contract. The legal definition says it typically means death of or injury to one of the parties involved in the contract, extraordinary weather, or natural disaster and kind of a catch-all one that states unforeseen events or occurrences that make the contract impossible to complete.
In our scenario, the aerial builder said there is no way it could have forecasted 300 percent increases on some parts and materials and a labor market so tight it can’t find people to work, never mind about the supply chain issues.
It’s a real quandary.
As I look at the fire industry news nearly daily, I see many other towns and builders in the same predicament. Some towns opt to bite the bullet, swallow the pill, and other euphemistic phrases and pay the additional money. Some manufacturers opt to absorb the cost increases and hope for better days to weather the storms. Some, like the little town in our scenario, stand up and fight back.
I see both sides to this issue. Why should a manufacturer be forced to honor contracts that will make it go out of business through no fault of its own? On the other hand, why should small, or even large, municipalities be essentially extorted into paying more for goods and services they contracted for in good faith? Why didn’t the manufacturer have a better read on the market and anticipate the increases and supply chain issues? Isn’t that its job? Isn’t that its fault?
Ultimately, a judge might be forced to rule on these cases, which are likely to grow in numbers. I wish I had sage advice for those who find themselves in a bind right now. From a consumer side, having worked on apparatus committees, I would ask the questions of a prospective builder who will be on the hook for exponential, unforeseen cost overruns or labor issues or delays because of supply chain issues. Get the answers in writing, and have a good lawyer look the contract over, because none of us like last-minute surprises, especially ones that can cost hundreds of thousands of dollars and cause delays in apparatus that we needed yesterday.
