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Public Works Contractors Need Not Show Fraudulent Intent to Recover Damages Caused by Incorrect Plans and Specifications

In Los Angeles Unified School District v. Great American Insurance Co. S165113, a decision filed July 12, 2010, the California Supreme Court decided whether a contractor on a public works project may recover in a contract action for extra work or expenses necessitated by a public entity’s failure to disclose information that materially affects the cost of performance. The decision eliminated a long-standing split in the Courts of Appeal as to whether a contractor needs to show fraudulent intent on the part of the public entity in order to recover for extra work or expenses.

In sum, the Court held that a contractor need not prove an affirmative fraudulent intent to conceal, and that a public entity may be required to provide extra compensation if it knew, but failed to disclose, material facts that would affect the contractor’s bid or performance. However, in such circumstances, the Court explained, the contractor can obtain relief for nondisclosure “only when (1) the contractor submitted its bid or undertook to perform without material information that affected performance costs; (2) the public entity was in possession of information and was aware the contractor had no knowledge of, nor any reason to obtain, such information; (3) any contract specifications or other information furnished by the public entity to the contractor misled the contractor or did not put it on notice to inquire; and (4) the public entity failed to provide the relevant information.”

It appears that the effect of this decision will be a lower bar for contractors who seek to recover damages from public entities under the theory that a public entity knew and failed to disclose information, which caused an increase in the cost of performance. However, it will still be difficult for contractors to obtain relief in such circumstances, because they must ultimately show that a public entity knew the information and knew that a contractor did not know it, and also that the contractor was not put on notice to make an inquiry that would have disclosed the information.

For more information about Los Angeles Unified School District v. Great American Insurance Co. or other matters related to construction law, contact Eric Firstman at 800.464.3559.