Item 8 Staff Report Authorize Participation in Amicus Curiae Brief in Amelco Electric v. City of Thousand Oaks, Division Six, Second Appellate Distruct, Case No. B129406, at no Cost to TownMEETING DATE: 2/7/00
ITEM NO.
COUNCIL AGENDA REPORT
DATE: February 1, 2000
TO: MAYOR AND TOWN COUNCIL ,,v
FROM: ORRY P. KORB, TOWN ATTORNEYb�
SUBJECT: AUTHORIZE PARTICIPATION IN AMICUS CURIAE BRIEF=IN AMELCO ELECTRIC v.
CITY OF THOUSAND OAKS, DIVISION SIX, SECOND APPELLATE DISTRICT, CASE NO.
B 129406, AT NO COST TO TOWN
RECOMMENDATION:
Authorize the Town Attorney to join the Town of Los Gatos in the amicus curiae brief in the case of Amelco Electric
v. City of Thousand Oaks, Division Six, Second Appellate District, Case No. B129406, at no cost to Town.
DISCUSSION:
This case affects cities' liability for contractors' claims beyond the contract price. The amicus brief will support the
appeal of the trial court decision which expands contractors' rights to recover additional compensation under theories
of law not usually applied to public entities.
The City of Thousand Oaks contracted with the lowest bidder to perform electrical work on its Civic Center project.
During work on the project, change orders were required and agreed upon, adding additional amounts to the original
contract amount. To the City's surprise, after completion of the job the contractor made an additional claim for yet extra
compensation. The jury awarded the contractor an additional $2.1 million under the "total cost recovery" and
"abandonment" doctrines, legal theories allowing compensation in the absence of contracts which are not ordinarily
applied to public entities.
If the trial court's decision is allowed to stand contractors would not be bound by the contract price nor even by the
agreed -upon amendments to the contract. Cities would be faced with uncertainty in contracts. They would be unable
to effectively plan or budget, nor would they be able to maintain any control in providing public works projects at the
lowest cost to the public as required by law.
Attachments: Memo dated January 20, 2000 from Parker, Milliken, Clark, O'Hara & Samuelian
Distribution: Nowland C. Hong, Esq., Parker, Milliken, Clark, O'Hara & Samuelian, 333 South Hope St., 27'h
Floor, Los Angeles, CA 90071-1488
OPK/ct pv:wrvwma.co Am)
PREPARED BY: ORRY P. KORB, TOWN ATTORNEY
Reviewed by: Manager Revised: 2/1/00 2:12 PM
Reformatted: 10/23/95 File# 301-05, 704-15.86
NOWLAND C. MONO
PARKER, MILLIKEN, CLARK, O'HARA & SAMUELIAN
A PROFESSIONAL CORPORATION
ATTORNEYS AT LAW
333 SOUTH HOPE STREET, 27m FLOOR
LOS ANGELES. CALIFORNIA 9007 I - 1488
TELEPHONE (2 1 3) 683-6500
January 20, 2000
TO: ALL CALIFORNIA CITY ATTORNEYS
cLAuo[ I. PARKER (I 8 7 1 - 1 95 2 )
JOIN S. M(WKEN (1 893- 198 1
RALPH KOHLMtIER <) 900- 1 976)
r•cslMILt (2 1 3) 883.6889
WRITER'S DIRECT DIAL NUMBER:
(2 1 3) 683-6580
E-MAIL:
NHONO@PMCOS.COM
TO";i `l
RE: JOINING IN THE AMICUS BRIEF FOR THE APPEAL OF THE TRIAL
COURT'S ADVERSE JUDGMENT IN THE Amelco Electric v. City of
Thousand Oaks (in Division Six of the Second Appellate District Court, Civ.
No. B129406):
ISSUE: APPLICABILITY OF THE DOCTRINES OF:
(1) "TOTAL COST RECOVERY" BY A CONSTRUCTION
CONTRACTOR, ALLOWING THE RECOVERY OF ALL COSTS,
PROFITS AND OVERHEAD INCURRED ON A JOB BEYOND THE
AMOUNT SET IN THE CONTRACT; AND
(2) "ABANDONMENT"
TO A PUBLIC WORKS CONSTRUCTION CONTRACT.
We request your city's Amicus assistance by joining that brief (on a no -cost basis)
regarding the appellate court's review of a judgment against the City of Thousand Oaks for $2.1
million in additional compensation to a public works construction contractor. That judgment
was based on the "total cost recovery" and contract "abandonment" doctrines. These doctrines
allow for the creation of an implied contract or quantum meruit recovery contrary to the holdings
of Miller v. McKinnon (1942) 20 Ca1.2d 83 and South Bay Senior Housing Corp. v. City of
Hawthorne (App. 2 Dist. 1997) 56 Ca1.App.4th 1231. The League of California Cities' Legal
Advocacy Committee has approved the preparation of an Amicus brief in this matter, Our firm
will be preparing that Amicus brief.
BRIEF DESCRIPTION OF CASE
The plaintiff, Amelco Electric, was the low bidder for electrical work of the Thousand
Oaks $64 million Civic Center project. Amelco's bid and contract were for $6.1 million.
Perhaps, due to the limited construction activity at that time, the contractor aggressively bid the
LEAGUE AMICUS ASSISTANCE Page 1
project on a low profit and no overhead basis. Pursuant to the written contract, progress
payments were made and releases obtained. However, after finishing the job, the contractor
made, to the City's surprise, a "total cost recovery"claim for extra compensation in the amount of
$1.7 million. The claim included monies to recover all of the contractor's costs, plus an amount
for overhead and profit on the entire job. The claim was based on an alleged breach of the
written construction contract, and also on the equitable theory of implied "abandonment" of that
written contract.
The City had 32 change orders on this large project. All change orders followed the
formal and written process set forth in the contract. These change orders added $1.1 million to
the original contract amount, which represented only an 18% increase to the initial total contract.
The contractor tracked other costs and impacts of City actions or changes to the project,
but it did not do so concerning the alleged impacts due the City's breaches. Although a large
sophisticated electrical contractor, it simply testified that due to the numerous sketches, record
keeping of the actual impacts was too difficult. Thus, Amelco never established at trial a fixed
cost impact or a direct causal relationship between any City action (be it the sketches or
whatever) and its damages. Rather, they asked for a "total cost recovery", summarizing "they
died of a thousand cuts" from handling these informational sketches.
A $2.1 million dollar "total cost recovery" verdict was rendered by the jury against the
City for both a breach of the written contract and for abandonment.
WHY THIS CASE MERITS CITY ATTENTION
Cities have numerous limitations on their authority to contract, particularly public works
contracts which must be awarded to the lowest responsive bidder. Under the abandonment
theory, if tied to a cost recovery claim, the contractor is not bound by the contract price or the
negotiated change orders, and the city becomes liable for any and all contractor inefficiencies
(costs plus profit/overhead, or practically a blank check). That type of lawsuit is really a
quantum meruit action, which the courts have traditionally denied against public entities. With
limited public funds, a city should be able to reasonably budget for its public projects, relying on
negotiated change orders and releases. A contractor should not be able to unilaterally determine
the contract has been abandoned, thereby creating fiscal budgeting havoc. It is common place
that in constructing a public project there will be some change in the work. If the public entities
have an exposure to an abandonment claim where written change orders are agreed to, every
contractor will be encouraged to make such indefinite claims.
Keeping separate and accurate records of the actual costs to the contractor of any
additional work or changes is the most reliable method of qualifying costs or damages. The
"total cost" method negates the bargain both parties made. That doctrine should not be used to
convert public contracts from a fixed price low bid arrangement to a cost plus contract.
LEAGUE AMICUS ASSISTANCE Page 2
ISSUES OFANAMICUS BRIEF
1. No quantum meruit recovery against public entities.
One who makes a contract with a public entity takes notice of those limitations on its
power to contract. Morrison Homes Corp. v. City of Pleasanton (1976) 58 Cal.App.3d 724, 727.
"And even though the person with whom the contract was made has supplied labor and materials
in the performance of the contract and the public agency has received the benefits thereof, he has
no right of action to recover in quantum meruit the reasonable value thereof." (Citations
omitted) "The competitive bidding requirement is founded upon a salutary public policy
declared by the legislature to protect the taxpayers from fraud, corruption, and carelessness on
the part of public officials and the waste and dissipation of public funds. " Miller v. J. M.
Mckinnon (1942) 20 Ca1.2d 83, 88. Generally, when a statute limits a city's power to make
contracts to a certain prescribed method, impliedly prohibiting any other method, a contract that
does not conform to that prescribed method is void and no implied liability can arise for benefits
received by the city. A "total cost recovery" converts a fixed price low bid contract to a quantum
meruit recovery, or the contract into a cost plus contract.
2. Total cost recovery disfavored.
Because the total cost method does not require the contractor to break down and prove its
costs or to link each extra cost item directly to the owner's actions, that method of damages
should be a disfavored remedy. Total cost allows the low bid contractor to recover its entire
costs incurred on the job, including added on profit and overhead. In Huber, Hunt & Nichols v.
Moore (1977) 67 Cal.App.3d 278, the court did not allow the inadequacies of the contractor's
accounting system to alter the contractor's normal burden of proving causation between the
owner's acts and the contractor's damages.
3. Unjustified betterment.
A fundamental principle in contract damages is the court should place the nonbreaching
party in the same position it would have been if the contract had been fully performed. Its goal is
not to make a better contract or to create profit where none existed. When a contractor has
aggressively bid the project on a low profit/no overhead basis, a verdict cannot include
unexpected profit and overhead.
4. Abandonment.
Abandonment of a written construction contract may be implied by the acts of the parties.
Opdyke & Butler v. Benjamin Silver (1952) 111 Cal.App.2d 912. Abandonment has been
justified because the scope of the work, when the contractor finally undertakes the actual work,
greatly exceeded that called for under the original written contract. Daugherty v. Kimberly-Clark
Corp. (1971) 14 Ca1.App.3d 151,156. However, no California abandonment case has been
found where a public entity was the owner. Public works projects must be awarded to the lowest
LEAGUE AMICUS ASSISTANCE Page 3
bidder and meet certain statutory requirements. Abandonment converts the written low bid
contract to a quantum meruit recovery.
In addition, both the City and the contractor must act in such a way as to abandon this contract,
and there must be excessive changes. C. Norman Peterson Co. v. Container Corp. of America
(1985) 172 Cal. App.3d 628. In Peterson the contractor had a "not to exceed" cost of
$4,789,000 and for a project to be completed in 18 months. Shortly after the bid, both parties
became aware that the initial drawings were inadequate. Thereafter, revised drawings were made
but some were up to 14 months late, yet the project was completed on time. The contractor
repeatedly complained about lack of revised drawings and their additional costs. The contract set
forth a formal procedure for change orders. However, there were so many changes that the
formal written change order process became an expedited oral process. The hundred plus change
orders added $3,405,713 to the original contract of $4,789,000, a 71% increase.
STATUS AND JOINDER OR CONSENT
Wendy Lasher of Lascher & Lascher (of Ventura, CA, Tel. No. 805-648-3228) is
handling the City's appeal now filed with Division Six of the Second Appellate District Court.
The City's opening brief was filed in mid December 1999. Our Amicus brief is due around mid
February 2000. We, therefore, request those cities wishing to join the Amicus, to return the
attached written consent form by February 4, 2000. Please specify how the name of the public
entity or the City Attorney should be printed on the brief.
you for your support,
nez,u,Ai
Nowland C. Hong
cc: Cynthia Morgan, League Staff
Rene Chouteau
Robert Flandrick
Ariel Calonne
Robert Shannon
LEAGUE AMICUS ASSISTANCE Page 4
Town Council_ Minutes
Redevelopment Agency
February 7,.2000
Los Gatos, California
COUNCIL CALENDAR OF MEETINGS (03.10)
Informational item presenting future Town Meetings for Council and other Town Boards and
Commissions was received and filed as it appeared in the desk item this evening.
RATIFICATION OF PAYROLL/DECEMBER 1999 : JANUARY 2000 (04.V)
Motion by Mr. Attaway, seconded by Mr. Pirzynski, ratify the check register for the payroll of
December 26, 1999 through January 8, 2000, paid on January 14, 2000, in the amount of $389,012.31.
Carried unanimously.
ACCOUNTS PAYABLE/RATIFICATION/JANUARY 2000 (05.V)
Motion by Mr. Attaway, seconded by Mr. Pirzynski, that Council ratify the accompanying check
registers for accounts payable invoices paid on January 14, 2000, and January 21, 2000 in the amount
of $426,299.10. Carried unanimously.
MINUTES OF JANUARY 18, 2000 (06.V)
Motion by Mr. Attaway, seconded by Mr. Pirzynski, that Council approve the Minutes of January 18,
2000 Town Council/Redevelopment Agency Meeting as submitted. Carried unanimously.
TREASURER'S REPORT (07.V)
Informational report submitted by the Treasurer to the Council for the month ended December 31,1999
was received and filed.
AMICUS BRIEF/AMELCO ELECTRIC VS CITY OF THOUSAND OAKS (08.01)
Motion by Mr. Attaway, seconded by Mr. Pirzynski, that Council authorize the Town Attorney to join
the Town of Los Gatos in the amicus curiae brief in the case of Amelco Electric vs. City of Thousand
Oaks, Division six, Second Appellate District, Case B 129406, at no cost to Town. Carried unanimously.
SENIOR TASK FORCE/LIAISON TOTO COMMUNITY SERVICES (09.20)
Motion by Mr. Attaway, seconded by Mr. Pirzynski, that Council consider appointing Community
Services Commissioner George Perazzo as liaison to the Senior Task Force. Carried unanimously.
ENGLEWOOD/ANNEXATION/TRAFFIC ISSUES (10.40)
Motion by Mr. Attaway, seconded by Mr. Pirzynski, that Council accept report on responses to Greg
Moss' questions re: Englewood neighborhood annexation. Carried unanimously.
VERBAL COMMUNICATIONS/RESPONSE (11.01)
Motion by Mr. Attaway, seconded by Mr. Pirzynski, that Council accept report on response to verbal
communication from Ms Mary Keith Osborn. Carried unanimously.
DOWNTOWN SIDEWALKS/MAINTENANCE/BUDGET (12.28)
Motion by Mr. Attaway, seconded by Mr. Pirzynski, that Council accept report on long term solution
(including downtown maintenance person) for mechanical cleaning of downtown sidewalks, and
authorize expenditure budget increase of $66,530 funded from the Manager's contingency fund. Carried
unanimously.
TC:C:NM020700
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