Lost profits as a measure of damages may be recovered in a breach of contract action where they were foreseeable and can be established with reasonable certainty.
In the recent case of Inspectronic Corporation v. Gottlieb Skanska, Inc., an appellate court explained the criteria for lost profits as damages for the wrongful termination of a subcontractor.
In 2003, Gottlieb Skanska entered into a contract with the New York City Department of Environmental Protection to perform repairs and renovations on the reservoir system providing water to the City. Skanska entered into a lump-sum subcontract with Inspectronic to perform all diving and underwater operations at the project consisting of seven “scope of the work” items. The contract contemplated change orders that would be billed on a time and materials basis.
Inspectronic completed three of the seven work items and some change order work when Skanska terminated the subcontract and replaced Inspectronic with another company who completed the remaining four work items and the change order work. Inspectronic thereafter sued Skanska for wrongful termination and sought to recover its lost profits in connection with the termination.
At trial, the court found that Skanska wrongfully terminated Inspectronic and determined that Inspectronic was entitled to its lost profits in the amount of $304,852. On appeal, Skanska challenged the trial court’s calculation of lost profit damages. The appellate court affirmed the award of lost profits relating to change order work that would have been performed by Inspectronic. The court relied upon well-established case law, which provides that if the damages were in the contemplation of the parties at the time of the contract then they are properly recoverable. The appellate court agreed with the trial court’s finding that at the time the subcontract was entered, the parties fully anticipated that there would be change order work relating to the diving and underwater operations, and that such change order work would be performed by Inspectronic. The measure of lost profit damages awarded to Inspectronic for the contemplated change order work were the actual amount paid to the replacement subcontractor who completed the change order work.
As for the lost profit damages for the four remaining base contract work items, the appellate court affirmed the trial court’s calculation of lost profit damages for the unfinished contract work items, which were the lump sum contract price, less payments already made and less the cost to complete the contract work.
As this case demonstrates, a party may recover lost profits provided they were foreseeable by the parties at the time the contract was entered into and are capable of calculation with reasonable certainty. The law does not require absolute certainty. Damages from the loss of future profits are after often an approximation. Here, the measures of lost profit damages for the unfinished contract work was the fixed contract price minus the amount it would have cost the contractor to complete. With regard to change order work, lost profit damages were easy for the court to establish with measurable certainty because the actual amount paid to the subcontractor who replaced Inspectronic provided an exact number for the loss of profits, without the need for any speculation.