By: WBG, LLP Published: March 2016

Public Owner Held Not Responsible for Contractor's Escalation Costs

In Laws Construction Corp. v. Town of Patterson (135 AD3d 830, 2d Dept. 2016), plaintiff submitted a bid to perform work on a New York construction project and was deemed the lowest bidder. Thereafter, construction was delayed and plaintiff was given the option to withdraw its bid. However, plaintiff elected to not withdraw its bid after defendant’s Town Supervisor advised (in writing) that “there appears to be no prohibition regarding (the) application of contingency monies built into contracts toward potential increases in costs of material and labor due to the extended time factor.”

Plaintiff submitted fourteen applications for payment to defendant, none of which included escalation costs, and all of which were paid. Plaintiff’s fifteenth application for payment, however, sought reimbursement for increased labor and material costs caused by delay in construction, totaling $121,119.93, which defendant refused to pay. Plaintiff then commenced suit against defendant to recover the escalation costs.

In response to plaintiff’s suit, defendant argued that plaintiff was attempting to improperly modify a competitive bid after the fact. In response, plaintiff sought to impose the legal doctrine of promissory estoppel, which stands for the principle that a promise is enforceable by law when the promisor (i.e. defendant) makes a promise to the promisee (i.e. plaintiff), who relies on it to their detriment.

In affirming summary judgment for defendant, the Appellate Division held that barring “exceptional circumstances” involving wrongful or negligent conduct of a governmental subdivision, estoppel is generally not available against a municipal defendant with regard to the exercise of its governmental functions. The Appellate Division further held that the Town Supervisor’s written statement did not establish an agreement by defendant to pay for plaintiff’s increased costs. The Appellate Division also rejected plaintiff’s argument that an oral representation (made during construction) by an agent of defendant was sufficient to grant it rights by estoppel. Such an oral representation would be contrary to the terms of the relevant contract, which required changes in the contract sum and time to be effectuated via written change order.

The holding in Laws Construction Corp. v. Town of Patterson demonstrates the importance of complying with agreed-upon contractual mechanisms for adjusting contract sums and performance schedules. If and to the extent you are seeking an extension of time or additional compensation, whether by way of escalation or otherwise, such extensions or additions should be accomplished through valid written change orders, or, if possible, through fully executed amendments to the relevant agreements. As Laws Construction Corp. v. Town of Patterson illustrates, a vague written promise will not hold weight against a municipal owner.

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