On October 26, 2016, the Oregon Court of Appeals reversed a general judgment and money award in favor of a general contractor because (1) the general contractor had failed to support its claim for damages for bonding and insurance costs with sufficient evidence, and (2) the money award improperly included a contractual markup on costs that was not specified in the parties' contract. Big River Construction, Inc. v. City of Tillamook, 281 Or App 787, __ P3d __ (2016). The court remanded the case for a retrial of damages.
Background of the Dispute.
In Big River, the City of Tillamook hired Big River Construction to be the general contractor for the expansion of the City's wastewater treatment plant. The original contract price was approximately $11 million. Construction began in 2007, and the parties agreed that substantial completion would occur in fall 2008 (approximately 14 months after construction began). The contract further provided that Big River would pay liquidated damages to the City if it failed to meet the original or agreed-upon extended substantial completion dates.
The project encountered delays that Big River attributed to deficient designs provided by the City's engineer and project mismanagement. Additionally, the scope of the project was significantly expanded during the project, and in February 2008, because of the increased scope and design deficiencies, Big River requested an equitable adjustment to the contract. The parties mediated Big River's claim, and agreed to a $940,000 increase to the contract price and an extended substantial completion date of June 4, 2009.
In 2009, the engineer continued to add scope to the project, including 12 owner-directed change orders that were issued in or after February 2009. By June 2009—the new substantial completion date—Big River had completed 97 percent of the project. Big River also submitted claims for additional costs that it incurred arising from (according to Big River) design and scope changes by the City and its engineer.
In the fall of 2009, the City stopped making payments on Big River's monthly pay applications, but Big River continued to work on the project. The City also notified Big River that liquidated damages were accruing against Big River for failing to achieve substantial completion by the agreed-upon date. Big River ultimately requested an additional equitable adjustment to the contract, which was denied by the City.
Trial: Big River wins big, but the City appeals.
At trial, the jury found in favor of Big River and issued a money award of $1,527,907.38. The City appealed the judgment and money award on various grounds, four of which merit discussion:
- Big River did not fail to prove its damages with reasonable certainty.
The City first argued that Big River's evidence of damages was too speculative to support the jury's award and that Big River had failed to prove its damages with reasonable certainty. The court disagreed, noting that "the 'reasonable certainty' standard for proving damages, which applies in a breach of contract case, 'is not a demanding standard'—all that is required is 'reasonable probability.'" Here, Big River offered its calculation of its extended overhead damages (and the City failed to preserve its objection to the formula Big River used to calculate those damages), and there was sufficient evidence (a) that Big River could not seek other work during the time period and (b) that design deficiencies imposed a heavy administrative burden to support the jury's award.
- Big River was entitled to recover its actual delay-related damages for extended overhead.
Next, the City argued that Big River was not entitled to recover damages for extended home office overhead because its damages were limited to the contract price for overhead (a percentage markup on additional work). Again, the court disagreed, concluding that Big River's extended overhead constituted consequential damages attributable to delays.
- Big River did not offer sufficient evidence to support its claim for bonding and insurance costs.
Next, the City argued that Big River's asserted damages for bonding and insurance costs were speculative because the amount claimed was a percentage of total damages, not the amount that Big River actually paid (or was obligated to pay). To support its damages claim, Big River offered testimony that bonding and insurance costs are calculated on its total volume of sales, and that as Big River's contract price increased, it would be assessed additional costs. But Big River failed to offer evidence that it was actually billed for any additional insurance premiums or bond assessments, and the court determined that those damages had been improperly submitted to the jury.
- Big River was not entitled to a contractual markup on its asserted damages.
Finally, the City argued that the court had improperly allowed the jury to award Big River a 15 percent contractual markup on its damages for extended jobsite general conditions, extended jobsite small tools, extended home office overhead, and project-management and scheduler costs. The court agreed, finding that there was no evidence to support applying a contractual markup to consequential damages or an equitable adjustment of the contract.
Lessons learned? Review your damages theories (and evidence) with a careful eye before trial.
Parties often focus more intently on the evidence supporting their claims (i.e., breach of contract), and not enough on evidence supporting their damages. As trial approaches, it is important to give proper attention to the evidence supporting your asserted damages—otherwise, you may prevail at trial only to have your award reversed and remanded for a new trial years later.