CONSTRUING CONTRACT AS A WHOLE LEADS TO NO RECOVERY FOR CONTRACTOR
By: Michael E. Stearns, Esq., Stearns, Roberts & Guttentag, LLC
It is a well settled rule of contract interpretation that, where possible, courts must read contract provisions harmoniously to give effect to all portions of the contract. That’s just what the court did inS&B/BIBB Hines PB 3 Joint Venture v. Progress Energy Florida, Inc., 2010 WL 457439 (Fla. 11 th Cir. 2010), and the result was that a contractor was denied its claim for additional costs associated with hurricanes.
In that case, the contractor contracted with the owner to design and build two multi-million dollar electric generating plants in Polk County, Florida. During construction, Polk County was hit by four hurricanes. The hurricanes caused labor and material shortages and increased construction costs. Following completion, the contractor asserted a claim for $40 million in additional compensation. The owner refused to pay and it was off to the court house. Since the contractor and owner were from different states, the lawsuit was eligible to be brought in federal court and that is where the contractor chose to file suit.
It didn’t work out well for the contractor. The district court dismissed the suit for failing to state a claim for breach of contract based on the language of the contract which the district determined precluded the contractor’s claim. The contractor appealed the decision, but achieved no better result.
The contractor’s claim was based on a “Force Majeure” clause in the contract. Force majeure clauses are not uncommon in construction contracts and are typically intended to protect the parties in the event the contract cannot be performed as contemplated due to events beyond the control of the parties such as extreme weather, civil unrest or even war. The force majeure clause in this contract provided that if a force majeure event occurred the contractor would be entitled to an extension of contract time only and, ” in no event shall Contractor be entitled to any increased costs, additional compensation or damages of any type resulting from such Force Majeure delays“.
This language would seem to pretty clearly bar the contractor’s claim, however, just a sentence later in the same clause, the contract stated that the contractor had a “duty to mitigate any and all costs” related to such an occurrence. To “mitigate”, in layman’s terms means to keep as low as possible. The contractor reasoned that the duty to mitigate cost language implied that the owner would pay those costs. After all, if the owner was not responsible for the increased costs, why would the contractor have an affirmative duty to mitigate them?
Unfortunately for the contractor, there were numerous other clauses in the contract which were also applicable and when the court read all the clauses as a whole it found that the original fixed contract price was intended to include all of the costs to build the project, including force majeure costs. These other, commonly found clauses, included a provision stating that the contractor was providing a “firm fixed price” and that no additional payment would be due to the contractor absent written authorization from the owner. In a “fixed price” contract, the risk that the final total cost of the agreed upon work is on the contractor. The court found that interpreting the force majeure clause as urged by the contractor would nullify rather than harmonize the other contract provisions.
This case illustrates the principal that court will seek to read contracts as a whole so as to give effect to all provisions. While the inclusion of the “duty to mitigate” language may have created a least some ambiguity, the other provisions of the contract clearly placed the risk on the contractor.
About the Author Michael E. Stearns has practiced exclusively in the area of Construction Law since 1996 and was designated as a Board Certified expert in construction law by the Florida Bar in 2005, the first year this designation was available. Mr. Stearns is “AV” rated by Martindale Hubble – the highest professional peer rating for legal ability and ethical standards. He is listed among the “Best Lawyers In America”, “Florida Super Lawyers” and “South Florida’s Top Lawyers”. Mr. Stearns got his start in the construction industry working as a carpenter while attending the University of Florida’s M.E. Rinker College of Building Construction where he received a Bachelor’s Degree in Building Construction. He has held a Florida State Certified Building Contractor’s license since 1989 and directed multi-million dollar construction projects as a project manager before attending law school and embarking on his legal career.