ELA Update: Court rules on damages for breach of construction contracts
Published: February 7, 2005
On Dec. 23, the California Supreme Court issued an important opinion on a school district’s liability for damages in a construction contract. CSBA’s Education Legal Alliance filed an amicus brief in support of the district in the case, Lewis Jorge Construction Management, Inc. v. Pomona Unified School District.
This case involves a dispute between Pomona USD and Lewis Jorge Construction over the construction of an elementary school. Lewis Jorge completed the bulk of the work, but did not finish the project. Ultimately, Pomona USD terminated the construction contract with Lewis Jorge and made a claim on the company’s performance bond. As a result, Lewis Jorge’s bonding agent reduced the company’s bonding capacity for future projects.
Lewis Jorge sued the district, claiming that the district’s termination of the contract after the project was essentially completed was a breach of the contract. The jury agreed and awarded the construction company damages of $362,621 owed on the contract plus additional damages of over $3,000,000 for lost potential profits from public works contracts that Lewis Jorge could not bid on because of the loss of bonding capacity. Given the excessive damage award, the outcome of this case could have had a far-reaching impact on school districts and county offices of education statewide.
The Supreme Court agreed with the district’s and the Alliance’s position that the district was not liable for Lewis Jorge’s loss of bonding capacity and the resultant loss of potential future profits. Although the court held that the district did breach the contract, it was only liable for the full payment of the contract price and whatever profits were built into that amount. If the jury’s verdict had been allowed to stand, there could have been a chilling effect on school districts and county offices, preventing the exercise of their contractual right to terminate contractors and to obtain timely completion of school construction projects.
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