Many construction payment disputes come down to one key question—who is responsible for extra costs incurred while building a project? Parties frequently have competing breach-of-contract actions that focus on who is liable. But a recent federal court case shows that you should not give short shrift to the damages that flow from the alleged breach.
In Barlovento, LLC v. AUI, Inc., Civ. No. 18-1112 GJF/JHR, 2021 WL 3879072 (D.N.M. Aug. 31, 2021), the United States Air Force awarded a general contractor a $5.5 million contract to renovate a taxiway at a military base. The general contractor then subcontracted the removal and replacement of the taxiway pavement and base course. This required the subcontractor to place three layers – subgrade, base course, and concrete.
The subcontractor fell behind in its performance of the work, and ultimately, the general contractor held a meeting with the subcontractor and a potential replacement subcontractor that would perform almost all the remaining work. At that meeting, the general contractor announced that it would take the concrete paving work away from the subcontractor. Despite the decision to de-scope the original subcontractor, the general contractor ended up terminating the subcontractor for default.
After completion of the project, the general contractor sued the terminated subcontractor for breach of contract and the subcontractor’s surety that issued a performance bond. The subcontractor filed a counterclaim for breach of contract against the general contractor. A nine-day trial was held, and the court found that the subcontractor breached the contract.
Despite ruling in favor of the general contractor, the court rejected almost all of the general contractor’s alleged $1.3 million in damages and made several interesting findings. First, the court addressed the general contractor’s claim for $830,000 in excess completion costs that the general contractor alleged it had to pay above and beyond the original subcontractor’s contract price. The court denied that claim because the general contractor presented no evidence of what it spent to complete the only work remaining for the subcontractor at the time of termination—the base course work. The court reasoned that the general contractor was not entitled to damages for the cost to complete the concrete phase because the general contractor removed that scope from the subcontractor’s contract before the subcontractor was terminated. Thus, the general contractor was not awarded any money for its excess completion costs.
Second, the court rejected the general contractor’s claim for $360,000 in extended general conditions costs. The court found that the general contractor failed to prove its extended general conditions costs because the general contractor did not show that any of those costs arose from or were caused by the termination of the subcontract for default. Specifically, the court noted that the general contractor did not introduce evidence that completion of the project was in any way delayed by the subcontractor’s performance or failure to perform.
Third, the court awarded the general contractor $234,000 for work it paid the subcontractor that was rejected and for laboratory-testing costs the general contractor incurred.
Finally, the court found that the subcontractor satisfactorily performed some of its work prior to termination. For that work, the court determined the subcontractor was entitled to $211,000.
After making the above findings, the court deducted the amount due to the subcontractor ($211,000) from the amount due to the general contractor ($234,000), and entered an approximately $22,000 judgment in favor of the general contractor. That is not a typo—the general contractor was only awarded $22,000 of its $1.3 million claim.
Bottom Line: Never forget the importance of pricing and proving your damages in construction disputes. In this case, the general contractor made an interesting (and as it turns out, poor) decision to remove work from the subcontractor’s scope before termination. Since the general contractor did not provide evidence of its cost to complete the scope that remained in the subcontractor’s contract, the general contractor lost its claim for excess completion costs. Also, it appears that the general contractor did not do a great job of proving its delay damages. Maybe there was a lack of expert testimony regarding those damages, but it is unclear how the general contractor attempted to prove its delay damages.
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