By Sam K. Abdulaziz & Kenneth S. Grossbart, Abdulaziz, Grossbart & Rudman
When you bid on a job you need to understand what work is involved, what materials you will use, and what subcontractors or material suppliers you will be using. But do you understand the rest of the contract? In the Greg Opinski Construction, Inc. v. City of Oakdale case, it is seen why it is important to have a complete understanding of what is in your contract. This matter went to trial for various other issues, but the issue at hand in the appeal is all that is discussed for purposes of this article.
This particular case came about because of seven months of job delays, unapproved change orders, construction defects and non-payment. The contract called for the job to be completed within 300 days. It laid out very specific change order procedures for which either the contract time or price could be changed. There were two acceptable avenues to have a change order accepted. The first was execution of the change order by mutual agreement in writing. In other words, the contractor determines that a change order is necessary and submits the written change order to the City, which in turn approves and signs the change order making it an accepted change order. The second way was to ask the engineer for a formal decision on the requested change order and to give written notice of the claim to not only the engineer but the other party no later than 30 days after the event of the occurrence. To clarify this, if a change order that the contractor submitted to the City was not accepted (signed), the contractor could petition the engineer for a decision with respect to that same change order, if it is done within 30 days of the need for that change order first being realized, and the City was also notified in writing of the petition.
The liquidated damages were $250 per day for those days after the 300 in the contract. The project was 7 months late. The City refused to pay almost $200,000 towards the balance of the contract and change orders, which the City refused to approve, and kept the funds in retention. The City also alleged defective conditions. During trial, it was determined that the cause for the delay was actually the fault of the City, not the contractor. However, the City still claimed that the liquidated damages were due it because Opinski not only did not submit a change order for the time increase to finish the job, but Opinski also did not submit a claim to the engineer for the time increase or the other change orders that the City refused to approve.
After careful review of the contract documents, prior case law, and statutes, the court ruled in favor of the City for $54,000 plus interest, and just over $3,000 for the defects. The court further stated that the City withholding the monies in retention was reasonable because it was allowed to withhold up to 150% of the amount in dispute. The court went on further to state that Opinski's claims were rejected because Opinski did not submit its claims in the manner laid out by the contract within the correct time frame laid out by the contract.
The appellate court sent the case back to the trial court to figure out the difference of what was awarded to the City and what was left of the retention in escrow. The difference of which was to go to Opinski.
Because Opinski was not familiar enough with the contract that was signed, Opinski lost out on a large sum of money that was initially due to it. When change orders were denied, Opinski needed to follow the second course of action by petitioning the engineer, who required that particular work to be done and would have approved the change orders. When Opinski was done with the job other contractors were still working on the project, Opinski should have had substantial completion signed off on for its part of the work or submitted a change order so as not to be responsible for the liquidated damages as laid out in the contract.
If Opinski knew its contract, this would have only cost $3,000 for the defects rather than over $65,000! Make sure you know what your contract says and that you refer to it frequently on the job so that something like this does not happen to you!
Sam Abdulaziz has been practicing construction law for over 35 years, and is considered one of the premiere experts in construction law, including California contracting license laws. He is the author of "California Construction Law." Kenneth Grossbart is recognized as one of the foremost authorities in California construction law. Over the past 30 years, Ken has become a respected speaker on Mechanic's Liens and other construction related issues. Abdulaziz, Grossbart & Rudman provides this information as a service to its friends & clients and it does not establish an attorney-client relationship with the reader. This document is of a general nature and is not a substitute for legal advice. Since laws change frequently, contact an attorney before using this information. Ken Grossbart and Sam Abdulaziz can be reached at Abdulaziz, Grossbart & Rudman: (818) 760-2000 or by E-Mail at ksg@agrlaw.com, or at www.agrlaw.com
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