Public work construction contracts always carry unique risk profiles.
One risk that often falls under the radar is the doctrine of sovereign immunity. This doctrine generally holds that no person can sue a government entity without having that entity’s consent to do so. The “consent” comes from federal and/or state statutes that create exceptions to the sovereign immunity defense.
Further reading:
- Beware ‘scope gaps’; one subcontractor found out the hard way with court loss
- A constructive acceleration claim requires proving an excusable delay
- Think you have a contractual claim? Speak up before it slips away
A recent decision by the Texas Court of Appeals, Baker & Company Construction LLC v. Smith County, provides an excellent example of how the doctrine impacted a contractor’s suit against a county for delay damages. The appellate court ultimately concluded that the sovereign immunity defense raised by the county failed, and the county was responsible for money damages incurred by the contractor.
The case
Smith County, Texas, awarded a construction contract to Baker & Company for paving and drainage improvements to a road within the limits of the city of Lindale, Texas. Prior to the commencement of the project, it was known that utility poles owned by Oncor, a Texas electric utility, were in the path of construction and would have to be moved by Oncor.
However, before Oncor could relocate all the utility poles, the county instructed Baker to begin work on the project.
While Baker started work, it was repeatedly disrupted by the utility poles that had yet to be moved. Utility poles were still in the path of Baker’s work about a year after Baker commenced construction, prompting Baker to ask the county to suspend the work until Oncor could remove all the poles from the construction site.
The county agreed and ordered a suspension of work on the project, resulting in Baker demobilizing its equipment and workforce. After a seven-month suspension, the county notified Baker that Oncor had removed the remaining utility poles and that Baker could proceed with work on the project. Baker remobilized and resumed work on the project.
A few months later, Baker saw its work disrupted again when it damaged a water main owned by the city of Lindale. Before Baker could proceed with further work, all parties agreed that the water main needed to be lowered. The city of Lindale decided to perform the work on its own, which again resulted in the county ordering a suspension of Baker’s work.
This suspension lasted a few months, and Baker’s work resumed when the county notified Baker that the city’s work on the water main was complete and work could proceed. Baker mobilized its equipment and workforce and shortly thereafter completed the project.
During the first work suspension, Baker contacted the county’s engineer and requested reimbursement for costs incurred because of the project delay. During the second suspension, Baker sent an email to the county and the engineer to request a meeting to discuss the outstanding requested amounts incurred due to the project delays.
Because the county declined to compensate Baker for the delays, Baker – upon completing the work – filed a lawsuit against the county for breach of contract.
Once discovery was conducted and the trial date was nearing, the county raised the defense of sovereign immunity by filing a “plea to the jurisdiction.” Baker opposed this action, arguing that the county waived its sovereign immunity defense under Texas Local Government Code Section 262.007, a statute that allows suits on written construction contracts for amounts “due and owed” under the contract. The trial court agreed with the county, prompting Baker to file an appeal.
The ruling
In determining whether Section 262.007 applied, the appellate court examined the parties’ contract to ascertain the intentions of the parties. It focused on Section 25 of the contract which stated in the relevant part:
No charge shall be made by [Baker] for hindrances or delays from any cause (except where the work is stopped by order of the [County]) during the progress of any portion of the work embraced in this contract. In case said work shall be stopped by the act of the [County], then such expense, as in the judgment of the ENGINEER is caused by such stopping of said work, shall be paid by the [County] to [Baker].
The county admitted that there were two periods of suspension during the course of the project, in which Baker’s work was stopped and Baker demobilized. The engineer’s representative testified during his deposition that the parties agreed that “it would be economically foolish” for Baker to keep its forces and equipment on-site if the utility poles were still in the way.
It was also undisputed that Baker was ordered to stop work while waiting for the city of Lindale to relocate the water main at issue. Based on these concessions, testimony, and undisputed facts, the court held that there was “more than a scintilla of evidence” that Baker stopped work on the project twice pursuant to order of the county and that this was covered by Section 25 of the contract.
The court was influenced by the fact that Baker wrote a letter to the engineer regarding the costs it incurred as a result of the first delay. It cited an email from the Smith County assistant district attorney to the engineer and Baker acknowledging his understanding that Baker and the engineer were discussing Baker’s requested change order and that a portion of the requested amount likely would be incorporated into a change order.
Baker also provided evidence that during the second work suspension it had advised the engineer about Baker’s incurred expenses. Accordingly, the court concluded that both the engineer and county knew that Baker was seeking payment of the expenses it suffered as a result of the county-ordered stop work periods.
The court noted that the “Final Payment” provision of the contract obligated the engineer to make the final measurement and statement of the value of all work performed and materials furnished under the contract. This included determining, under Section 25, the amount of expenses Baker incurred because of the two county-ordered suspensions.
The court found that the county’s failure to compel the engineer to determine such amounts was a breach of its contract with Baker.
One of the defenses raised by the county was that Baker’s pleadings lacked specificity with regard to the expenses due and owing under Section 25, and apparently this was cited by the trial court in its decision to grant the “plea to the jurisdiction.”
The appellate court rejected this defense, finding that: “All of the damages Baker seeks to recover allegedly were caused by these County-ordered suspensions.” It held that the county had the initial burden of proof to show the trial court lacked jurisdiction and that the county did not meet that burden with regard to expenses potentially due and owing under Section 25.
Regardless, the appellate court concluded that if Baker’s pleadings were insufficient, the trial court should have given Baker a chance to amend its pleadings.
Based on all the above, the appellate court concluded that the trial court erred in granting the county’s plea to the jurisdiction – i.e., in recognizing the county’s sovereign immunity defense. The case was sent back to the trial court for further proceedings, which was in large measure to determine the damages owed to Baker under Section 25 because of the suspensions.
Takeaways
Even though the decision did not explain it clearly, the sovereign immunity defense raised by the county appeared to be based on deficiencies in what Baker was claiming as amounts “due and owing” under the contract. Based on the information contained in the reported decision, the authors are at a loss to understand what the trial court was thinking in granting the county’s plea.
It was clear that Baker’s claim was based on county-ordered suspensions under Section 25 and that Baker had a right to recover some costs. The appellate court certainly reached that conclusion fairly readily.
This created an unfortunate situation for Baker. While we do not know the value of the suspension costs claimed by Baker, the fact that the sovereign immunity defense was first raised by the county so close to trial and that Baker had to seek an appellate ruling means that Baker spent a substantial amount in legal fees.
This case also has an important takeaway for engineers, who commonly have responsibility for advising/determining change order values and final amounts due to contractors. The failure of the engineer to fulfill its responsibilities, coupled with the failure of the county to compel the engineer to fulfill its responsibilities, directly led the appellate court to find that the county had breached its contract with Baker.
One would have expected the engineer to do its job, establish the value of the claim based upon Baker’s submissions, and leave it to the county’s lawyers to argue whatever sovereign immunity defense was appropriate.
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