- Leave Me Alone So That I Can Do My Work: Owner Interference with Contractor
- July 15, 2011
- Law Firm: RB PIERCE A Professional Law Corporation - Brea Office
LEAVE ME ALONE SO THAT I CAN DO MY WORK:
OWNER INTERFERENCE WITH CONTRACTORS
By Ronald B. Pierce, Attorney at Law
Explaining California law, California Civil Jury Instruction Number 325 states that, “In every contract or agreement there is an implied promise of good faith and fair dealing.” It further explains, “This means that each party will not do anything to receive the benefits of the contract”
What does this general legal principle mean to contractors?
First, it means also that, when bidding for a construction contract, a contractor is entitled to schedule its work in the most efficient and cost-effective sequence to the contractor, to the extent allowed by the contract, plans and specifications.
Second, it means that a contractor has the right to perform its work as it reasonably expected at bid time, how the contractor, not the owner wants, consistent with the requirements in the contract, plans, and specifications.
Third, once its bid is accepted, the owner has the obligation to cooperate in all respects with the contractor’s performance, subject to contract, plan, and specification requirements.
Fourth, on the other hand, it means that a contractor may have a claim for disruption, change order, suspension of work, or changed conditions whenever an owner causes a change in the means, methods, or order of construction upon which the contractor based its bid, thereby increasing the contractor’s expenses.
These contractor claims are variously called “disruption,” interference,” or “hindrance” claims.
In a leading appellate case, Howard Contracting, Inc. v. MacDonald Construction Co., Inc. and City of Los Angeles, the California Court of Appeal reviewed a public works contract for the rehabilitation of the canals in the Venice neighborhood of Los Angeles. MacDonald, the general contractor, agree to improve the existing canal system by removing material from the canals and constructing soils retaining walls along the canal’s banks. Howard, MacDonald’s subcontractor, was responsible for clearing debris from the canals, excavating materials from the sites and bottoms of the canals, and earth grading and filling the project site.
In order to proceed with the work, the City of Los Angeles needed to obtain permits from various regulatory agencies, including the California Coastal Commission, the United States Army Corps of Engineers, and the California Regional Water Quality Control Board.
The City knew that some of these public, regulatory agencies intended to restrict what, how, and when the contractor could remove materials from the site. For example, excavation materials would have to be deposited in a special dump. Yet, the City said nothing.
Moreover, the City knew that it intended to restrict contractor’s access to the construction site. Yet, the City said nothing.
Plus, the City’s plans and specifications were silent about these unusually adverse conditions and challenges that the City knew, or could reasonably anticipate, that MacDonald, Howard, and other subcontractors would face.
When construction was to start, MacDonald and Howard discovered that the necessary permits relating to the project were not available and that the City would limit access to the site.
The general contractor filed suit against the City for breaches of the implied covenants and for cost overruns, including the damages caused by the City’s delays and disruptions to the project.
The City defended on the basis that such implied promises do not exist at all and that the contract prohibited the contractor from recovering damage for delay.
The Court of Appeal ruled for the contractor. It determined that the City breached its implied covenant to fully cooperate with the contractor’s performance, to provide timely access to the project site, and to provide plans and specifications that were correct.
Additionally, the Court concluded that the no-damage-for-delay clause did not prevent the contractor from recovering from the City under the California Public Contract Code.
Lastly, the Court held the City liable for the contractor’s resulting damages, including extra costs of increased project and home office overhead expenses.
What should a contractor do if it is being delayed by its project owner, or the owner’s agents, such as project architects or engineers hired by the owner?
A contractor should:
- Analyze its contract with the owner to see if, how, and when notices must be given;
- Give any required notices to the owner;
- Create and keep documents, at the same time as delay events occur and as the additional costs are incurred, that show what owner-caused events result in what disruptions, delays, inefficiencies, and other impacts upon the contractor and its subcontractors;
- Record how and why actions or inactions, by the owner or its agents, caused increased costs that the contractors did not, and could not, have reasonably expected at bid time); and
- Identify and quantify the contractor’s increased costs.
Only with such procedures can a contractor fully protect itself from owners’ interference with the contractor’s work.
Ronald B. Pierce is a California attorney and President of RB PIERCE, A Professional Law Corporation, 949,244.9367, [email protected]. He practices construction law, primarily representing contractors. He is an active member of the Associated General Contractors of California, including its AGC’s Legal Advisory Committee, attending its monthly meetings and annual retreats. This article in one in a series called “Caveat Contractor (Contractor Beware): Lessons in the Law”©.
© Ronald B. Pierce 2011