Howard Contracting, Inc. v. G.A. MacDonald Construction Co.
83 Cal. Rptr. 2d 590, 71 Cal.App.4th 38 (1999)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A 'no damage for delay' clause in a public works contract is unenforceable under Public Contract Code section 7102 when delays are caused by the public agency's breach of contract, such as the active concealment of material information, and this statute applies even to charter cities as public contracting is a matter of statewide concern.
Facts:
- The City of Los Angeles (City) solicited competitive bids for a project to rehabilitate the Venice Canals.
- Prior to the bidding process, the City knew that excavated material from the canals was contaminated and required special, more costly disposal.
- The City was also aware that regulatory agencies intended to impose a construction moratorium from April 1 to September 30 to protect the nesting season of a migratory bird.
- Despite this knowledge, the City's bidding documents failed to disclose the soil contamination and time restrictions, instead indicating that no special handling of materials was necessary.
- G.A. MacDonald Construction Co., Inc. (MacDonald) submitted its bid in October 1991, unaware of these undisclosed conditions.
- After the City awarded MacDonald the contract, the City's failure to have the proper disposal permits in place delayed the project for four months.
- The subsequent bird-nesting moratorium forced construction into the rainy season, causing an additional four months of delay and substantially increasing costs for MacDonald and its subcontractors.
Procedural Posture:
- Howard Contracting, Inc. initiated litigation by filing a complaint in California trial court against G.A. MacDonald Construction Co., Inc. and the City of Los Angeles.
- MacDonald cross-complained against the City, seeking to recover extra costs and damages incurred by itself and its subcontractors due to project delays.
- MacDonald and Howard settled their dispute, with only MacDonald's action against the City proceeding to trial.
- The parties stipulated that a retired judge acting as a referee would hear the trial.
- The referee found the City breached the contract and awarded MacDonald over $1.1 million in damages, but ruled that subcontractor Soil Retention Systems was not entitled to recover damages on its pass-through claim.
- The Superior Court entered judgment in accordance with the referee's decision.
- The City appealed the judgment against it, and Soil Retention Systems appealed the denial of its pass-through claim to the California Court of Appeal.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does Public Contract Code section 7102 render a 'no damage for delay' clause in a charter city's public works contract unenforceable when the delay is caused by the city's unreasonable acts and concealment of material information?
Opinions:
Majority - Boland, J.
Yes. Public Contract Code section 7102 renders a 'no damage for delay' clause in a charter city's public works contract unenforceable when the delay is caused by the city's unreasonable acts and concealment of material information. The court found that the City breached the contract and the implied warranty of correctness by actively concealing material information regarding soil contamination and construction time restrictions. These acts caused unreasonable delays that were not within the contemplation of the parties when the contract was formed. The 'no damage for delay' clause is therefore inapplicable under both the statute and longstanding case law, which holds that such clauses do not apply to delays arising from a breach of contract by the public agency. The City's status as a charter city does not provide immunity from the state statute under the 'home rule' doctrine, because the contract term does not arise from a city charter provision and the subject of competitive bidding on public works is a matter of statewide concern.
Analysis:
This decision significantly reinforces the principle that a public entity cannot use a 'no damage for delay' clause as a shield against liability for its own active concealment or breach of contract. It clarifies that a public agency's duty to provide accurate plans and disclose material information (the implied warranty of correctness) is a fundamental obligation that cannot be contracted away through boilerplate language. The ruling limits the 'home rule' power of charter cities in the context of public works contracting, affirming that the state legislature can regulate such matters to ensure fairness and prevent fraud on a statewide basis. This precedent protects contractors from bearing the costs of undisclosed risks known only to the public agency, thereby promoting more equitable risk allocation in public construction.
