In a recent California case, a general contractor was awarded damages for the owner's breach of contract. Significantly, however, a portion of the damages award was measured by the general contractor's lost profits resulting from its reduced bonding capacity. The owner had terminated that contractor and then entered into a takeover agreement with the general contractor's bonding company. The bonding company then sued the general contractor. As a consequence of this dispute with its bonding company, the general contractor's bonding capacity was reduced from 3 to 4 million per job and 6 to 7 million in the aggregate to $500,000 per job and $500,000 in the aggregate.
Although it is somewhat unclear from the Court's opinion, it seems that the Court found that the Owner had improperly terminated the general contractor and sought a replacement contractor through the bonding company. This termination was a breach and the Court concluded that the general contractor had put on sufficient evidence to demonstrate that when a contractor is placed in a position of dispute with its own surety it will have significant difficulty acquiring bonds. The general contractor demonstrated its anticipated lost profits through an historical average and projecting its likely profits on the basis of that average.
While this case is decided under California law, the legal principles that form the basis of the opinion are entirely consistent with Maryland law. In short, there is no distinction between California and Maryland law on this subject that would preclude a contractor from making the same argument under Maryland law.
For any questions, contact Matt Hjortsberg. Hjortsberg@bowie-jensen.com - or 410-583-2400.
Although it is somewhat unclear from the Court's opinion, it seems that the Court found that the Owner had improperly terminated the general contractor and sought a replacement contractor through the bonding company. This termination was a breach and the Court concluded that the general contractor had put on sufficient evidence to demonstrate that when a contractor is placed in a position of dispute with its own surety it will have significant difficulty acquiring bonds. The general contractor demonstrated its anticipated lost profits through an historical average and projecting its likely profits on the basis of that average.
While this case is decided under California law, the legal principles that form the basis of the opinion are entirely consistent with Maryland law. In short, there is no distinction between California and Maryland law on this subject that would preclude a contractor from making the same argument under Maryland law.
For any questions, contact Matt Hjortsberg. Hjortsberg@bowie-jensen.com - or 410-583-2400.
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