District Liable for Extra Costs Associated with Completion of Public Contracts

April 2012

A California appellate court recently found, in G. Voskanian Construction v. Alhambra Unified School Dist. (March 29, 2012, B221005, B224355) __Cal.App.4th__, a school district can be liable for extra costs associated with public contracts when a governing board approves written change orders, even if they are approved after the work is completed.  Additionally, a school district can be liable for the costs of extra work where no change order exists if the extra work is necessitated by incorrect specifications or plans put forth by the school district.

G. Voskanian Construction (“Voskanian”) entered into two contracts with the Alhambra Unified School District (“District”) to act as general contractor for a relocation project (“Contract 1”) and a fire alarm project (“Contract 2”).  Both contracts contained language stating that the agreement could only be modified by a written amendment agreed to by all the parties and approved by the governing board. 

During the course of work on Contract 1, Voskanian was asked by the District to make changes, remedy errors, and resolve problems caused by the plans drawn by the District’s architect and the District’s desire to work outside of the plans.  Voskanian and the construction manager drafted change orders to reflect this extra requested work.  Although the District and Voskanian could not agree on the cost of the changes, in accordance with the contract Voskanian completed Contract 1 and then filed a claim with the District for the additional money.  Long after the work was completed, the District’s governing board authorized the Contract 1 change orders.  

At the time of bidding on Contract 2, a contract to install a fire alarm system, Voskanian was given the District’s plans and specifications and asked to make his bid from them.  After winning the bid and beginning the project, Voskanian discovered that the specifications and plans were inaccurate and the work and equipment required to complete the project was more extensive than considered in his bid.  Again, the District and Voskanian could not agree on the extra cost.  Voskanian completed Contract 2 and then filed a claim with the District for the additional money. 

Regarding both Contract 1 and Contract 2, the District refused to pay the remainder of the money owed and/or the extra work costs submitted by Voskanian.  Voskanian filed suit against the District after his claim was rejected.  A jury returned a special verdict awarding him over $400,000 including penalties and interest.  The trial court also granted Voskanian approximately $280,000 in requested attorney’s fees and costs.  The District appealed both decisions.

The appellate court found that typically change orders for extra work must be in writing pursuant to contractual obligations and cannot be waived or orally modified.  Regarding Contract 1, the court found that the change orders were put in writing and approved by the governing board, even though such approval was subsequent to the completion of the work.  Therefore, Voskanian was entitled to recover for the additional work performed in conjunction with Contract 1.

Although no written change orders were issued by the District regarding Contract 2, Voskanian was entitled to recover for his additional work because the extra work was caused by the incorrect plans and specifications issued by the District.  The court found that the law is clearly settled that a contractor in a public works project who is misled in his bid because of incorrect or misleading plans or specifications provided by a public entity, may recover for extra work performed on a theory that the supplying of incorrect information is a breach of an implied warranty of correctness. 

The District also appealed the awarding of attorneys fees by the trial court, claiming no statutory authority existed for such an award.  Pursuant to the contracts with the District, Voskanian had obtained a performance bond, which included language stating that in the case of a dispute between the surety and the District, the prevailing party would be entitled to attorney fees.  The District argued that Voskanian was not entitled to recover under the attorney fees provision in the performance bond because the District was not a signatory to the bond.  However, in its cross-complaint, the District sought to enforce the performance bond against Voskanian and his surety and requested its own attorney fees under the bond.  Since Voskanian and his surety were the prevailing party, had the same interests, and were represented by the same counsel, they were entitled to recover attorney fees pursuant to the performance bond.  The appellate court, relying on a factually similar case, Mepco Services, Inc v. Saddleback Valley Unified School Dist. (2010) 189 Cal.App.4th 1027, found that Voskanian and his surety were entitled to recover the attorney fees pursuant to the performance bond language.

Although this case is specifically related to a school district, the principles apply to all public works contracting.  If you have any questions regarding district liability or public contracts, please call one of our six offices.

F3 NewsFlash prepared by Mark Williams and Becky Feil.

Mark is a partner in the F3 Oakland office.

Becky is an associate in the F3 Sacramento office.

This F3 NewsFlash is a summary only and not legal advice.  We recommend that you consult with legal counsel to determine how this new law may apply to your specific facts and circumstances.  Information on a free NewsFlash subscription can be found at www.fagenfriedman.com.

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© 2012 Fagen Friedman & Fulfrost, LLP

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