Balfour Beatty Rail, Inc. v. The Kansas City Southern Railway Company, 2016 U.S. Dist. LEXIS 39086 (N.D. Tex., March 25, 2016)

The contractor contracted with owner to install 65 miles of railroad track, for a price of $12,206,666. The owner had engaged another contractor to grade and prepare the substrate for the railroad track, and was to furnish and deliver aggregate for track ballast and track rail material to various locations along the rail route. The contractor’s scope included all other work. The contractor fell behind in its work, and the owner hired additional contractors to complete a portion of its scope. The contractor blamed the delays on the owner’s late delivery of aggregate and rail, and improper subgrade preparation under a theory of differing site conditions. It sought $4.35 million in unpaid change orders, delay damages, and penalties under Texas’ prompt payment statutes. The owner in turn sought $2.6 million in completion costs and costs of wasted aggregate.

The District Court granted summary judgment to the owner dismissing contractor’s contract claims based on differing site conditions and for quantum meruit based on prolongation delay. The court granted summary judgment to contractor dismissing owner’s claims for corrective or remedial work performed by the additional contractors. The contractor’s remaining claims included breach of contract due to prolongation delay; and breach of contract and quantum meruit for unpaid change orders and violation of Texas prompt payment statutes. The owner’s remaining claims included: breach of contract for wasted ballast; and costs to retain additional contractors to complete contractor’s scope. The remaining claims were adjudicated in a bench trial, with the court finding for contractor in the amount of $34,820.35 regarding change orders 45, 46, 47, and 50; and in favor of the owner $2,353,299.40 for wasted ballast. Both parties were awarded prejudgment interest.

The court denied the contractor’s breach of contract claim based on delay, finding that the contractor had first materially breached the contract by failing to maintain the schedule due to defective performance. The court identified the contractor’s lack of experience and improper planning as the cause for falling behind schedule, initially requiring the owner to stop or delay shipments of aggregate and rail. The court cited the Texas rule that “one who has not fully or strictly complied with a contract cannot maintain as suit for its breach.” The court also noted that while the doctrine of substantial compliance may relieve the contractor of this consequence, where a breach is material the breaching party cannot prove substantial compliance. Measday v. Kwik—Kopy Corp., 713 F.2d 118 (5th Cir. 1983). The court found that the contractor’s request to speed up aggregate and/or rail deliveries after it corrected its management issues was not an agreed upon duty of the owner under the contract, and thus the owner’s claimed failure to adhere to the contractor’s accelerated delivery schedules could not be a breach. The court also found that the contractor had not proven any that the costs it incurred after the original completion date were due to actions by the owner, but concluded instead, as shown by the owner’s expert, such costs were likely attributable to deficient performance by the contractor. Lastly, the court held that the contractor’s assertion of a modified total cost claim was not supported by Texas law, as Texas courts do not “recognize this method for calculating damages in construction or other cases.”

The court found in favor of the contractor for some of the contractor’s unpaid change order claims, totaling $34,820.35. For the remaining denied change order claims the court held that the contractor did not provide sufficient evidence to support the claims, or that the contractor had failed to notify the owner of its intent to seek costs for the changes prior to its performing the work as required by Texas law. The failure to so notify the owner precluded recovery under both contract and quantum meruit theories. The contract terms required prior notice and approval before performing any change order work. To recover under quantum meruit a party must prove: (1) valuable services were rendered or material furnished; (2) for the person sought to be charged; (3) which services or materials were accepted by the person sought to be charged; (4) under such circumstances as reasonably notified the person sought to be charged that the plaintiff in performing such services was expecting to be paid by the person sought to be charged. City of Houston v. L.J. Fuller, Inc., 311 S.W.2d 285, 289.

Texas prompt payment statute claims (Tex. Prop. Code Ann. § 28.002(a)) are limited to services covered by a contract. The court held that the claims that the contractor prevailed upon, the change order claims, were outside of the scope of the contract. Thus, the contractor’s prompt payment claims were denied.

The court found in favor of the owner regarding its wasted ballast claims, for a value of $2,353,299.40. The court cited the use of approximately 75,000 tons of excess aggregate due to flawed construction methods utilized by the contractor – improper leveling of the track bed.. The court also found that the subgrade preparation by the owner’s subgrade contractor was consistent with the contract’s intent, and not a differing site condition.

The court denied the owner’s claims for costs to supplement the contractor’s work with additional contractors. Texas law requires that an owner is required to show that the amounts sought for claims such as these are reasonable and necessary. However, the trial testimony only provided that the actual costs plus markup were charged, and did not provide testimony that the costs charged were reasonable for the work performed.

The court held that prejudgment interest was appropriate on both parties claims under Texas law. Thus, the final award including prejudgment interest was $47,561.43 to contractor and $3.027,596.63 to owner.

To view the full text of the court’s decision, courtesy of Lexis ®, click here.