By: Alexander A. Miuccio Published: June 2016

Town is not Estopped from Denying Contractor's Delay Claim

The legal doctrine of equitable estoppel prevents one party from taking advantage of another when, through misrepresentation or misconduct, the other party relied upon the misrepresentation to his or her detriment, resulting in an injustice. In the recent case of LAWS Construction Corp. v Town of Patterson, a contractor sought to rely on the Town Supervisor’s statements for payment of escalation costs caused by the Town’s delay in starting the project.

Background

In July of 2005, LAWS submitted a successful bid to perform work on a Town construction project. When construction was subsequently delayed, LAWS (and the other successful bidders) were given the option to withdraw their bids. At a meeting shortly thereafter, the Town Supervisor was asked whether the Town would reimburse the bidders for increased costs in labor and materials that would be incurred due to the delay. In response, the Town Supervisor wrote a letter advising all bidders that “there appears to be no prohibition regarding application of contingency monies built into the contracts toward potential increases in costs of material and labor due to the extended time factor.”  In reliance on this representation, LAWS declined to withdraw its bid, entered into a written contract with the Town, and ultimately performed the required work. LAWS was later told by a Town agent during construction to request payment for the increased costs at the completion of the work. 

During the course of the project, LAWS submitted 14 requisitions for payment, none of which included cost escalations. All of these requisitions were paid. LAWS’s requisition No. 15, seeking reimbursement for the increased costs of labor and materials caused by the delay in construction in the sum of $121,119.93, was rejected by the Town. LAWS commenced this action against the Town to recover for the increased costs of material and labor associated with the delay in construction.  LAWS claimed it would not have entered into the contract if it was not assured that its increases in labor and material would be paid.  The Town moved for summary judgment dismissing LAWS’s complaint.

Decision

The court granted the Town’s motion and dismissed LAWS’s complaint, relying on the well settled principle of law that the theory of estoppel is generally not available against a municipality, absent a showing of “exceptional circumstances”.  The appellate court affirmed, finding that the exceptional circumstances involving wrongful or negligent conduct of a governmental agency subdivision, or its misleading nonfeasance, did not exist here.  According to the court, the Town Supervisor’s letter indicating that there was no prohibition in the contract preventing the awarding of delay damages did not constitute an agreement to specifically do so. Absent such a specific agreement, the Town was not estopped from denying payment for the increased cost of labor and materials. 

Comment

This case demonstrates the heavy burden of establishing equitable estoppel against a governmental agency.  Only in rare circumstances have the courts found that a municipality engaged in misleading conduct that would support equitable estoppel.  Accordingly, contractors would be well advised when dealing with a governmental contracting agency to support its claims based on the explicit language of the contract document, rather than relying upon the equitable theory of estoppel.

© Welby, Brady & Greenblatt, LLP.
All Rights Reserved. By visiting this site, you agree to our Terms of Service. For more information please read our Privacy Policy Attorney Advertising