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Technology Construction, Inc. v. City of Kingman - 6/12/2012

Arizona Court of Appeals Division One Holds That Commodity Price Increases Caused By Hurricane Katrina Were Foreseeable Damages And That A “No Liability” Clause In Public Construction Contract Does Not Immunize City From Damages Caused By City’s Unreasonable Delay.


Technology Construction, Inc. (“TCI”) successfully bid on a Kingman city project.  TCI bid a certain price for the work.  TCI was to complete phase one between June 1 and June 30, 2005 and phase two between July 18, 2005 and March 15, 2006.  These dates became unworkable, however, because Kingman did not present a contract to sign and did not provide TCI with necessary notices to commence construction until months later.  TCI did not contribute to the delay.  In the interim, Hurricane Katrina caused prices to go up on asphalt and other oil-based products.

In May 2006, TCI submitted a notice of claim to the city asking for upward adjustments to the contract price due to the delays and increased costs for materials.  Kingman never paid and TCI sued.  After a bench trial, the trial court entered judgment for TCI and awarded it damages reflecting the additional costs incurred to complete the work. 

The Court of Appeals affirmed the judgment.  First, Kingman argued that no damages were permitted because the city’s contract included a “no liability” clause.  The clause stated that “in no case . . . will the City . . . be liable for any portion of the expenses of the work.”  The contract, however, also incorporated other documents, including a document entitled “Uniform Standard Specifications for Public Works Construction.”  That document contained clauses stating that public construction contracts “shall” allow the contractor to seek damages for expenses caused by the public entity’s unreasonable delay, and that a contractor should be able to seek an adjustment to the contract due to “changed conditions unknown to all parties at the time of the bid.”  Kingman contended that the “no liability” clause controlled. 

The Court disagreed, holding that the “no liability” clause did not shield the city from damages caused by “the significant delays that occurred in this case.”  The Court pointed to several California cases construing similar provisions which had held, for various reasons, that such clauses did not totally absolve municipalities from all liability. 

Second, the Court likewise rejected Kingman’s argument that the contract was a “fixed price contract.”  The Court noted that the city’s contract specifically incorporated the Uniform Specifications, and that document included a provision for “changes in the contract amount.”  The parties’ course of dealing also undermined Kingman’s argument because there had been multiple change orders during the project that altered the contract price.

Finally, Kingman invoked the rule of Hadley v. Baxendale to argue “that TCI’s delay damages for increased material costs were not foreseeable.”  That case stands generally for the rule that only reasonably foreseeable damages can result from a breach of contract.  The Court held that the damage caused was foreseeable because commodity prices “change over time and in accordance with market forces under many influences, including weather.”

Judge Thompson authored the unanimous opinion; Judges Portley and Gemmill concurred.

Posted by: Joseph Roth 

 

Posted On: 6/25/2012