Construction Law Update: Contractors May Claim Additional Compensation for Extra Work Caused by Deficient Plans and Specifications Supplied by a Public Entity

In G. Voskanian Construction v. Alhambra Unified School District, 2012 Cal. App. LEXIS 368, general contractor G. Voskanian Construction (“Voskanian”) brought suit against Alhambra Unified School District (the “District”) to recover for extra work that it performed on two public works contracts. In upholding the $706,557 judgment in favor of Voskanian, the Court of Appeal clarified that public contracts, unlike private contracts, cannot be modified by the conduct of the parties; confirmed the District was liable because the plans did not accurately portray the site conditions; and confirmed the attorneys’ fees provision in Voskanian’s performance bond was enforceable against the District.

Voskanian entered into two contracts with the District: a relocation contract, which involved moving numerous portable buildings to a new location, and a fire alarm contract for those buildings. Voskanian performed work pursuant to several verbal change orders, which were approved by the District in writing after the project was completed. Voskanian’s bid for the fire alarm work was based on the plans and specifications prepared by the District’s architect. Due to the errors in the plans, Voskanian performed extra work. At the completion of the project, the District refused to release retention, refused to pay for change orders, and refused to pay for extra work. Voskanian filed suit and sought payment of $206,637 on the relocation contract and $94,777 on the fire alarm contract. The jury awarded Voskanian $419,756 in damages, and the trial court awarded Voskanian $286,801 in attorneys’ fees and costs.

The District’s refusal to pay Voskanian was based on its argument that oral change orders were not allowed under the contracts. The Court of Appeal agreed with the District, but also found that the change orders were appropriate because the District had subsequently authorized the changes in writing. More importantly, the Court of Appeal found that Voskanian’s ability to recover for extra work performed in connection with the fire alarm contract did not turn upon the issuance of written change orders. Instead, the court found that the District was liable to Voskanian for the required extra work because of the District’s misleading plans and specifications. The Court stated, “it is settled law that ‘a contractor of public works who, acting reasonably, is misled by incorrect plans and specifications issued by the public authorities as the basis for bids and who, as a result, submits a bid which is lower than he would have otherwise made may recover in a contract action for extra work or expenses necessitated by the conditions being other than as represented.'” This rule is based on the theory that the furnishing of misleading plans and specifications by the public entity constitutes a breach of an implied warranty of their correctness. In relying on this rule, the Court distinguished an oral modification of a contract from a situation in which the contractor is misled by incorrect plans and specifications provided by the public entity. In the former scenario, the contractor would be barred from recovery, while in the latter, the contractor is entitled to recovery.

The Voskanian case thus illustrates that a contractor may be compensated for extra work because of deficient plans and specifications. While the case does not establish new law, the case is an important reminder of the tools available to a contractor in situations involving payment disputes. It should be noted that the District was also potentially liable for prompt payment penalties under Public Contract Code section 7107, but it is unclear whether Voskanian pushed that issue at trial since it was not part of the appeal.

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April 2, 2012