Atlas-Allied, Inc. ("Atlas") contracted with San Diego Community College District to construct an underground fire suppression system on the District's Miramar College Campus.  The project involved the installation of fire hydrants and approximately 2,700 linear feet of underground water pipeline.  Following completion of the project, Atlas sued the District for damages it incurred because of allegedly unforeseen conditions on the project site that caused it to incur costs that exceeded the contract price.  Specifically, Atlas claimed that it suffered damages because the District did not disclose the existence of "stadium conglomerate" on the project, a subsurface soil condition, which lowered Atlas' productivity.  Atlas alleged the District breached the contract by failing to pay additional costs that Atlas incurred because of encountering stadium conglomerate.  Atlas also alleged that the contract specifications furnished by the District misled Atlas into believing that there would be no unforeseen site conditions.

The trial court entered judgment in favor of the District on Atlas' causes of action for breach of contract and "breach of warranty/failure to disclose hidden conditions on the project plans and specifications."  The trial court found that the District had fully compensated Atlas under the contract and that the site conditions that Atlas encountered were not materially different from what the District represented in the contract.  The court also found that the plans, specifications, and other information the District provided put Atlas on notice to investigate further regarding subsurface conditions and did not mislead Atlas.

In an unpublished decision, the Court of Appeal affirmed the trial court's judgment in favor of the District.  The court held that although a public contractor who is reasonably misled by incorrect plans and specifications may recover for extra work necessitated by the conditions being other than represented, the critical question is "justified reliance."  Citing the California Supreme Court's holding in Los Angeles Unified School District v. Great American, Inc. Co., the court explained that a contractor's recovery from a public entity for failure to disclose facts is limited to the following circumstances:  (1) the contractor submitted its bid or undertook to perform without material information that affected performance costs; (2) the public entity possessed the information and knew the contractor had no knowledge of, nor any reason to obtain, such information; (3) any information furnished by the public entity to the contractor misled the contractor or did not put it on notice to inquire; and (4) the public entity failed to provide relevant information. 

The court held that the project specifications informed Atlas of subsurface conditions, even though they did not specifically refer to stadium conglomerate.  The court held that the information provided by the District put Atlas on notice to investigate further regarding subsurface conditions.  The court also held that there was no evidence that the District was aware that Atlas was certain to encounter stadium conglomerate in performing the evacuation for the project.  Finally, the court held that the District's relevant disclaimers in the contract weighed against Atlas' recovery for unforeseen circumstances. 

Note:
This is an unpublished decision, and we cannot rely on it as precedent.  However, the holding relies on California Supreme Court precedent, and confirms that in a public works project, a contractor's recovery against a public entity is limited to narrow circumstances and a showing of justified reliance.

Atlas-Allied, Inc. v. San Diego Community College District (Jul. 30, 2014, D061295, D061774) [2014 WL 3735539] [nonpub. opn.].