Contractors Permitted to Use Modified Total Cost Method of Damages in Public Project Claims

General contractors on public works projects often assert close-out claims against the public entity at the end of projects. When this occurs, the method in which the general contractor can prove its damages on a claim is often the major issue.

On March 18, 2010 the California Court of Appeal, Second Appellate District, confirmed that in California, general contractors are permitted to use the modified total cost method to prove damages on close-out claims. Under the total cost method, damages are determined by subtracting the contract amount from the total cost of the contractor’s performance. A contractor can avail itself of the total cost method only if it shows the following: (1) it is impractical for the contractor to prove actual losses directly; (2) the contractor’s bid was reasonable; (3) the contractor’s actual costs were reasonable; and (4) the contractor was not responsible for the added costs.

However, under the modified total cost method, if the contractor is responsible for some of its increased cost of performance, then those costs are subtracted from the contractor’s damages to arrive at the modified total cost. In other words, the contractor cannot be foreclosed from proving the amount of damages caused by the public entity, just because the contractor itself is responsible for some of its extra costs. Click on the link to read the Court’s opinion in the case, Dillingham-Ray Wilson v. City of Los Angeles, B192900.

For more information about Dillingham-Ray Wilson v. City of Los Angeles or other public contracts and construction matters, please contact Eric Firstman at 800.464.3559.