If
you are the victim of a breach of contract, the law requires
that you exercise reasonable care and diligence to minimize
or lessen your damages. And damages that could have been avoided
cannot be recovered. The Colorado Court of Appeals, in Westec
Construction Management Co. v. Postle Enterprises I, LLC., 68
P.3d 529 (Colo. App. 2002), cert. denied (April 21, 2003), addressed
how this concept precluded a project owner from recovering delay
damages against its contractor. This case is also another example
of the importance of making, and keeping records of, communications
on a construction project.
The basic facts as explained in the case are as follows: Westec
Construction Management Company (“Westec”) contracted
to build a fast-food restaurant for Postle Enterprises I, Inc.
(“Postle”). Under the contract, Postle was responsible
for marking the property boundaries. But Westec hired a surveyor
to set the property pins. The surveyor erred, and, as a result,
Westec ended up building the foundation in the wrong place. In
fact, part of the foundation was placed on the neighboring property.
Westec disclaimed any liability for the mistake, but the surveyor
acknowledged its error. After discovering the problem, Westec
stopped work completely.
Westec refused to recommence work unless Postle signed a change
order adding both time and money to the contract. The surveyor
offered to Postle to pay for the cost of demolishing and relocating
the foundation, with consequential damages to be negotiated later.
Postle rejected this offer, and refused to sign Westec’s
proposed change order. Ultimately Westec completed the project
27 months behind schedule. The foundation was relocated, and
the surveyor ended up purchasing part of the neighboring land,
which was later conveyed to Postle.
The dispute went to court. And on Postle’s claim for breach
of contract against Westec, the trial court found in Postle’s
favor, and awarded Postle damages for the relocation of the foundation,
staffing costs, and lost profits. But the trial court found that
Postle failed to mitigate the delay, and therefore refused to
award Postle damages for the 27-month delay. The Court of Appeals
agreed with the trial court’s decision.
Some of the factors important to the courts were: Postle’s
refusal to accept the change order; Postle’s failure to
issue any other form of notice to proceed to Westec; Postle’s
failure to object to the form of the change order proposed by
Westec; Postle’s failure to give the surveyor information
about its claimed expenses; and evidence that Postle delayed
the matter in an effort to receive the conveyance of the neighboring
property that the foundation encroached upon.
Postle did not believe that it should be made to agree to pay
more money and extend the project deadline because of a mistake
made by the surveyor, a subcontractor to Westec. The courts did
not explain why, or even state that, Westec was justified in
stopping work on the project in the first place, and insisting
that Postle agree to sign the change order. But they did address
Postle’s apparent failure to adequately communicate to
both Westec and the surveyor about its objections to Westec’s
proposed change order, and its reasons for not accepting the
surveyor’s offers.
According to the Court of Appeals, Postle did not give Westec
any other form of notice to proceed, nor did it negotiate or
object to Westec’s change order. It also failed to indicate
to the surveyor that the change order was the reason for its
refusal to give Westec a notice to proceed, and it failed to
provide requested documentation to the surveyor for its claimed
expenses. In short, Postle “refus[ed] to authorize the
relocation of the foundation without making any effort to do
so under terms it considered to be satisfactory . . . .” This,
according to the courts, was unreasonable. The lessons learned from this case may seem obvious, but they
warrant repeating. First, if a party fails to take reasonable
steps to stop a delay on a project from continuing, that party
may be precluded from recovering delay damages, no matter who
initially caused the delay. Second, make sufficient communications
on the project, be responsive to the other parties’ communications,
and record and retain copies of these communications. When a
dispute arises, let your file do the talking.
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