COURT FINDS FORCE MAJEURE CLAUSE IN CONTRACT MUST BE INTERPRETED ACCORDING TO ITS PLAIN, UNAMBIGUOUS MEANING
By: Michael E. Stearns, Esq., Stearns, Roberts & Guttentag, LLC
In S&B/BIBB Hines PB 3 Joint Venture v. Progress Energy Florida, Inc., 2010 WL 457439 (Fla. 11 th Cir. 2010) the court reviewed the issue of whether a contractor would be entitled to additional costs after several hurricanes, a labor shortage and materials shortage dramatically increased the cost of construction of a fixed price contract.
S&B/BIBB Hines PB3 Joint Venture and S & B Engineers and Constructors, Ltd. (collectively “Contractor”) entered into two fixed price agreements (“Contracts”) to perform engineering, procurement, and construction work on two multi-million dollar electric generating plants (“Projects”) in Polk County, Florida for Project Energy Florida, Inc. (“Owner”).
During the course of construction, four hurricanes hit Polk County causing a shortage of labor and materials and increasing construction costs. Additionally, the cost of materials also increased during the course of construction due to increased world-wide demand for building materials.
At the end of the Projects, Contractor claimed it was entitled to $40 million in additional compensation beyond its fixed contract price. When Owner refused to pay any amount above the contract price, Contractor filed a law suit alleging that Owner breached the Contracts by refusing to provide compensation for its unforeseen labor and materials costs.
Contractor asserted that the Contracts’ firm, fixed price did not include its costs incurred due to unforeseeable force majeure events. The Federal District Court disagreed and dismissed Contractor’s claims at the pleading stage and concluded that the fixed price Contracts foreclosed any recovery of additional compensation beyond the Contracts’ price.
The Federal Appellate Court applied the rule that a court must give effect to the plain language of a contract when that language is clear and unambiguous. The parties’ Contracts provided that Contractor, was to provide a fixed price for the scope of work. Additionally, the Contracts stated that “no extra payment shall be allowed over and above the Contract Price except for work authorized by a Change Order or Amendment from Owner.”
Delay caused by acts of God, severe weather conditions, restrictions imposed by a governmental agency, labor strikes, material shortages, or other events beyond the control of the Contractor would typically be considered force majeure events. However the Contracts provided that “should contractor be delayed in the commencement, performance or completion of the Work due to any of the conditions [regarding force majeure events], Contractor shall be entitled to an extension of time only, provided however, that in no event shall Contractor be entitled to any increased costs, additional compensation, or damages of any type resulting from such Force Majeure delays ….” Thus, Contractor could only be entitled to additional time in the event of a delay caused by a force majeure event.
Contractor, however, contended that its claim was not for delay, but for “costs” because it had completed its work on time. However, a separate provision of the Contracts stated that “…under no circumstances whatsoever shall Contractor be entitled to compensation as the result of a Force Majeure event.” Thus, the Appellate Court concluded that under the plain and unambiguous Contract, the only possible remedy for Contractor for a force majeure event was an extension of time, not a right to additional costs. As a result, Contractor could not claim that Owner was responsible for any amount other than its fixed price of the original agreement.
This case illustrates that a Court is bound by the law to interpret a contract according to its plain and unambiguous meaning, even if the result is seemingly harsh or unfair. Additionally, this case illustrates the consequences of a provision in a contract that denies a contractor compensation for a force majeure event. Because the contractor did not negotiate for a change order for its additional costs the Owner successfully claimed that Contractor was entitled to nothing on its multi-million dollar claims caused by several hurricanes and a labor and materials shortage.
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.