Title: Amelco v. Thousand Oaks

State: california

Issuer: California Supreme Court

Document:

1
Filed 2/4/02
IN THE SUPREME COURT OF CALIFORNIA
AMELCO ELECTRIC,
)
)
Plaintiff and Respondent,
)
)
S091069
v.
)
)
Ct.App. 2/6 B129406
CITY OF THOUSAND OAKS,
)
)
Ventura County
Defendant and Appellant.
)
Super. Ct. No. 157153
__________________________________ )
In this case we determine whether the abandonment theory of liability applies
against a public agency, and whether plaintiff public works contractor, which sued
for breach or abandonment of the public works contract, is entitled to
compensation under a total cost method of measuring damages.  The jury found
the contract was breached and abandoned, and awarded total cost damages.  The
Court of Appeal affirmed.  We conclude the theory of abandonment does not
apply against a public entity, and that Amelco Electric failed to adduce sufficient
evidence to warrant instructing the jury on total cost damages for breach of
contract.  We therefore reverse the judgment of the Court of Appeal.
I.  FACTUAL AND PROCEDURAL BACKGROUND
In 1992, defendant City of Thousand Oaks (City) solicited bids for electrical
work to be performed in the construction of the Civic Arts Plaza, a project
including a civic center or office building, a dual-purpose 400-seat council
chamber and forum theater, an 1,800-seat civic auditorium or performing arts
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theater, and an outside area (the project).  Instead of a general contractor, the
project was managed by Lehrer McGovern Bovis, Inc. (LMB), and the City
solicited bids for the various prime contracts.  City received five electrical work
bids.  Amelco Electric (Amelco), one of the largest electrical contractors in the
United States, bid $6,158,378, and was awarded the contract.  All five bids came
within 10 percent of each other and the three lowest bids were within 3 percent of
each other.
During the two-year construction process, City furnished 1,018 sequentially
numbered sketches to the various contractors to clarify or change the original
contract drawings, or to respond to requests for information.  The vast majority of
the changes were to one building, the civic center or office building, and to the
outside lighting.  Of the sketches issued, 248 affected the electrical cost.  Amelco
requested 221 change orders, and City and Amelco agreed upon 32 change orders
encompassing these change order requests.  As a result of these change orders,
City paid Amelco $1,009,728 above the contract price, an increase of nearly 17
percent.
Amelco claimed at trial that the project involved an unusually high number
of sketches that were difficult to work with.  Amelco further claimed that
scheduling the various contractors’ work became more difficult as a result of the
changes.  Amelco testified it was at times required to delay or accelerate particular
tasks and to shift workers among tasks to accommodate work by other trades.
While Amelco maintained daily records of its work activities, it was unable to
produce documentation of instances in which its performance of a work directive
or change order was delayed or interfered with by LMB’s actions, and for which it
was not compensated.  The general foreman, the person responsible for actually
recording the information, was given a hypothetical regarding recordkeeping
practices:  “[I]f you came to this courtroom to work today, . . . and the wall was
3
moved, that would be something you would put in your daily log?”  “No.”  “You
wouldn’t note that?”  “I wouldn’t put it down on my daily log.”
Amelco’s vice-president asserted the sheer number of changes made it
“impossible” to keep track of the impact any one change had on the project or on
Amelco, likening the effect to “death by 1,000 cuts.”  Amelco conceded it was
inefficient in performing the work, but assigned responsibility for virtually all of
that inefficiency to LMB.
In May 1993, Amelco wrote to LMB concerning “Work Directive 48,
addendum No. 1,” which Amelco asserted improperly shifted engineering
documentation responsibilities to Amelco.  Amelco also expressed concern that
the electrical drawings being issued did not identify all revisions, or contain all
prior revisions, and gave examples of how these omissions interfered with its
performance.  Amelco requested a change order and $203,759 in additional funds
to hire a drafter to update the drawings, a foreperson, and a project engineer.
LMB refused additional funds on the ground that these tasks were included in the
original contract price.  Amelco claimed at trial that it accepted this decision, did
not hire any additional personnel to do the work, and signed a change order for
zero dollars and zero additional time, because LMB verbally promised that “things
are going to get better.”
On July 29, 1994, over a year later, and approximately two months before the
project was completed, Amelco sent a letter requesting a second change order be
issued for Work Directive No. 48.  Amelco asserted the executed change order did
“not include any field productive labor impact or related problems,” and that
“[t]he price for this work will follow in the near future.”
In January 1995, Amelco submitted a $1.7 million total cost claim for costs
allegedly resulting from the noncaptured costs of the change orders.  The
testimony was in conflict whether LMB had requested that Amelco submit such a
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claim; in any event, the claim was rejected.  Amelco filed this action, ultimately
alleging abandonment and breach of the construction contract.  By the time of
trial, Amelco’s claim had increased to $2,224,842 because of the discovery of
additional costs.
The City asserted Amelco lost money on the project because it failed to start
work promptly on the project, did not coordinate its work with other trades, such
as by regularly attending mandatory coordination meetings, reduced its workforce
so that it did not have enough workers to install the major electrical system
components efficiently, did not have an organized manner of incorporating
changes into the drawings (unlike other contractors on the project), performed
work on the project under at least one subcontract for a different subcontractor
during this period, and generally mismanaged its work.
After a five-week trial, the jury found the City had both breached and
abandoned the contract, and awarded Amelco $2,134,586 respectively (but not
cumulatively) for each claim.
The Court of Appeal affirmed.  As relevant here, it concluded that as a matter
of law a public works contract can be abandoned, and the jury was properly
instructed on the measure of damages.
We granted the City’s petition for review.
II.  DISCUSSION
A.  Does the Abandonment Theory of Liability Apply Against a Public
Entity?
1.  Background
In general, under long-standing California law, if a public contract is declared
void, a contractor may not be paid for work performed under that contract.  (Miller
v. McKinnon (1942) 20 Cal.2d 83, 89 (Miller).)  In Miller, we explained, “Persons
dealing with the public agency are presumed to know the law with respect to the
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requirement of competitive bidding and act at their peril. . . .  [¶]  If, as we have
seen, the contract is absolutely void as being in excess of the agency’s power, the
contractor acts at his peril, and he cannot recover payment for the work
performed.”  (Miller, at p. 89.)
Similarly, this court has not generally allowed quantum meruit recovery for
extra work performed beyond the contract requirements.  (Zottman v. San
Francisco (1862) 20 Cal. 96, 101, 105-106 (Zottman).)  In Zottman, the
contractors were hired by the City of San Francisco to do work improving
Portsmouth Square, including constructing a fence around the square.  (Id. at p.
99.)  After the contract was entered into, the officials appointed by the city’s
common council, “in [the] presence of the City Attorney, the President of the
Board of Aldermen, and of different members of the Board, ordered the
contractors to perform . . . extra work . . . – that is, to construct a stone base in
place of the one of wood, and to paint the iron of the fence – and assured them that
the city would pay them therefor. . . . [A]ll the members of the Common Council
must have been aware of the order to the contractors, as the work was in full view
from the windows of the Council chambers, and was the subject of general
conversation and approval by the members at their various sessions and elsewhere,
and no opposition to it was ever expressed by any member.”  (Id. at p. 99.)  When
the contractors were not paid for the extra work, they sued the city, and nonsuit
was entered in the city’s favor.  (Id. at p. 100.)
We affirmed on the ground the city charter authorized only a contract given
to the lowest bidder.  (Zottman, supra, 20 Cal. at pp. 103, 108.)  “A contract made
in disregard of these stringent but wise provisions cannot be the ground of any
claim against the city. . . . The mode in which [the Common Council] could bind
the [municipal] corporation by a contract for the improvement of city property was
prescribed by the charter, and no validity could be given by them to a contract
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made in any other manner.”  (Id. at pp. 101-102.)  We observed, “ ‘It may
sometimes seem a hardship upon a contractor that all compensation for work done,
etc., should be denied him; but it should be remembered that he, no less than the
officers of the corporation, when he deals in a matter expressly provided for in the
charter, is bound to see to it that the charter is complied with.  If he neglect[s] this,
or choose[s] to take the hazard, he is a mere volunteer, and suffers only what he
ought to have anticipated.  If the statute forbids the contract which he has made, he
knows it, or ought to know it, before he places his money or services at hazard.’ ”
(Id. at pp. 104-105; Los Angeles Dredging Co. v. Long Beach (1930) 210 Cal. 348,
353 [it is “settled that the mode of contracting, as prescribed by the municipal
charter, is the measure of the power to contract; and a contract made in disregard
of the prescribed mode is unenforceable”]; First Street Plaza Partners v. City of
Los Angeles (1998) 65 Cal.App.4th 650, 669 [“No case has ever held that a city
may be bound to a contract by estoppel”]; id. at p. 671 [“[T]he proposition that a
contract with a city is not binding unless formed in accordance with the city
charter has been in place in California at least since the time of the Civil War, and
is based on analogous authority traceable back to Chief Justice Marshall”].)
The question in this case is whether a public entity is liable under an
abandonment theory to a contractor when it makes numerous changes to the
contract work, and these changes allegedly make it difficult and more costly to
perform the contract because of delay, interference with the work of other trades,
and other problems not captured in the price of the executed change orders.  In
California, the Courts of Appeal have concluded that private parties may impliedly
abandon a contract when they fail to follow change order procedures and when the
final product differs substantially from the original.  (Opdyke & Butler v. Silver
(1952) 111 Cal.App.2d 912, 913-914, 916, 918-919 (Opdyke) [owner made
numerous changes, the parties consistently ignored the requirement that changes
7
be in writing and priced before the work was done, and owner paid sums
substantially over the maximum contract limit without requesting justification for
the extra work]; Daugherty Co. v. Kimberly-Clark Corp. (1971) 14
Cal.App.3d 151, 154-156, 159 [summary judgment reversed because of disputed
issues of fact on abandonment and other issues; noted “the parties consistently
ignored the procedures provided by the contract for the doing of extra work,” and
that “[a]bandonment of the contract can occur in instances where the scope of the
work when undertaken greatly exceeds that called for under the contract”].)
In C. Norman Peterson Co. v. Container Corp. of America (1985) 172
Cal.App.3d 628, 632-634 (Peterson), Container Corporation of America (CCA)
contracted with C. Norman Peterson Co. (CNP) to modernize CCA’s recycling
mill based in part on drawings by CCA’s engineer Industrial Mechanical
Corporation.  “During the first 14 months, the work was to be performed while the
papermill was in operation.  During the next two months, work was to be
performed while the mill was shut down.  This shutdown period was the most
critical phase of the project; time was of the essence during this period so the mill
could be restarted.  There was then to be a two-month cleanup period.”  (Id. at p.
633.)  During the shutdown phase hundreds of changes were ordered, and the
written change order procedure was abandoned—“it became ‘strictly oral.’ ”  (Id.
at p. 637.)
On appeal, the court affirmed the judgment entered in CNP’s favor.  It noted,
a construction contract is abandoned “when an owner imposes upon the contractor
an excessive number of changes such that it can fairly be said that the scope of the
work under the original contract has been altered.”  (Peterson, supra, 172
Cal.App.3d at p. 640.)  “[A]bandonment requires a finding that both parties
intended to disregard the contract.”  (Id. at p. 643; Ben-Zvi v. Edmar Co. (1995) 40
Cal.App.4th 468, 474 [“Abandonment occurs . . . only where both contracting
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parties agree ‘that the contract is terminated and of no further force and effect’ ”].)
“Although the contract may be abandoned, the work is not.”  (Peterson, at p. 640.)
In Peterson, there were “hundreds of changes, many of them significant,
resulting in extra work having to be performed by CNP.  As in Opdyke, the
requirement for written change orders was ignored during most of the project
period, and it was completely abandoned during the critical shutdown stage.”
(Peterson, supra, 172 Cal.App.3d at p. 641.)  Moreover, the Industrial Mechanical
Corporation engineer spent 16,414 hours redesigning the project after work had
begun.  (Id. at pp. 636, 642.)
The Court of Appeal also upheld the trial court’s further finding that CCA
had breached the contract.  (Peterson, supra, 172 Cal.App.3d at pp. 642-644.)
“[R]ather than being inconsistent with abandonment, . . . breaches by CCA were
actually the precipitating cause for the construction contract being abandoned
within the meaning of Daugherty and Opdyke and the subsequent implicit
understanding by the parties to proceed with the project on a quantum meruit
basis.  So long as there was no double recovery based on the trial court’s dual
findings, we conclude the trial court could properly find both a breach of the
contract and a subsequent abandonment of the contract brought about by the
breach.”  (Id. at pp. 643-644.)
Dodge v. Harbor Boat Bldg. Co. (1950) 99 Cal.App.2d 782 (Dodge) also
appears to be cited by Amelco as an abandonment case, but it does not seem to
rely on this theory.  In Dodge, National Ship Service Co., Inc. (National Ship)
performed subcontracting work for Harbor Boat Building Co. (Harbor Boat)
“moth-balling” two naval vessels.  (Id. at pp. 784-785.)  While the project was
ongoing, the Navy stated that change orders would be issued to account for certain
extra work, and invited the contractors to submit a request.  (Id. at p. 786.)
National Ship submitted to Harbor Boat a detailed description of its $79,592.65 of
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extra work (id. at p. 789) requested by Harbor Boat that was “ ‘different from the
original specifications or not specified at all.’ ”  (Id. at p. 787.)  National Ship
invited Harbor Boat to inspect its records; Harbor Boat accepted them as correct.
(Id. at p. 791.)  Harbor Boat submitted a consolidated request to the Navy which
did not separately delineate National Ship’s costs.  (Id. at pp. 789, 791.)  While
Harbor Boat was paid $141,622 from the Navy for the extra work, it paid National
Ship nothing.  (Id. at p. 789.)  The trial court awarded National Ship a net
judgment of $61,610, apparently on a quantum meruit theory.  (Id. at p. 791.)
The Court of Appeal affirmed, noting there was an implicit “determination
by the trial court that the value of the work done by National Ship provided a
proper basis for a judgment in its favor and that it was unnecessary to sue on the
original contract.”  (Dodge, supra, 99 Cal.App.2d at p. 790.)  The court noted that
“a different result would not have been reached if plaintiff had sued upon the
contract, and also for the extra work.”  (Id. at p. 791.)
Hence, in Dodge, it appears the contractor carefully delineated its $79,592.65
in costs (id. at p. 789) from the extra work requested by Harbor Boat that was
“ ‘different from the original specifications or not specified at all.’ ”  (Dodge,
supra, 99 Cal.App.2d at p. 787.)  Harbor Boat was paid for that and its own extra
work, but failed to pass on any portion of the Navy’s payment to National Ship.
This obvious inequity does not suggest the Court of Appeal concluded the contract
was abandoned, but rather that National Ship was found to be entitled to payment
for at least a portion of the authorized extra work.  Indeed, the Court of Appeal
noted that “a different result would not have been reached if plaintiff had sued
upon the contract, and also for the extra work.”  (Id. at p. 791.)
The United States Federal Court of Claims has historically recognized
government breach of contract liability under the doctrine of cardinal change.
Here, Amelco asserts the abandonment doctrine is coextensive with the cardinal
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change doctrine.  In fact, the theories are fundamentally different.  Under Opdyke
and Peterson, once the parties cease to follow the contract’s change order process,
and the final project is materially different from the project contracted for, the
contract is deemed inapplicable or abandoned and is set aside.  The plaintiff may
then recover the reasonable costs for all of its work.  (Peterson, supra, 172
Cal.App.3d at p. 645; see Opdyke, supra, 111 Cal.App.2d at p. 919.)  There is
little, if any, separation between the theory of liability and the measure of
damages.  This is the approach Amelco urges we apply here.
Under the cardinal change doctrine, the cardinal change “constitutes a
material breach of the contract.”  (Alliant Techsystems, Inc. v. U. S. (Fed. Cir.
1999) 178 F.3d 1260, 1276 (Alliant).)  The contractor may recover breach of
contract damages for that additional work.  (Saddler v. United States (Ct.Cl. 1961)
287 F.2d 411, 414-416 [cardinal change entitled contractor to expenses properly
attributable to changes defendant required]; Air-A-Plane Corporation v. United
States (Ct.Cl. 1969) 408 F.2d 1030, 1033.)  There is no hint in any Federal Circuit
or Court of Claims case to which we have been directed that the terms of the
federal contract are held inapplicable or set aside for the period prior to the breach,
or that the government’s payments for other work not affected by the cardinal
change are suddenly compensated on a quantum meruit basis.  (See, e.g., Stone
Forest Industries, Inc. v. U. S. (Fed. Cir. 1992) 973 F.2d 1548, 1552 [“If only a
severable portion of a contract was breached, the non-breaching party can recover
damages for that portion of the contract but its remaining contractual duties are not
discharged”] and cited in Alliant, at p. 1276; Stone Forest Industries, at p. 1552
[“if a contract is not clearly divisible . . . the breaching party can not require the
non-breaching party to continue to perform what is left of the contract”]; Alliant,
at p. 1276 [“Such a material breach has the effect of freeing the contractor of its
obligations under the contract, including its obligations under the disputes
11
clause”].)  Moreover, the jury in this case was never instructed on the cardinal
change theory.  We therefore do not reach the issues of whether the cardinal
change theory applies in California, and whether the change here was cardinal.
2.  Analysis
We now consider whether the abandonment theory of liability applies against
a public entity.  We conclude it does not, since such a theory is fundamentally
inconsistent with the purpose of the competitive bidding statutes.
Under the abandonment doctrine, once the parties cease to follow the
contract’s change order process, and the final project has become materially
different from the project contracted for, the entire contract—including its notice,
documentation, changes, and cost provisions—is deemed inapplicable or
abandoned, and the plaintiff may recover the reasonable value for all of its work.
Were we to conclude such a theory applied in the public works context, the notion
of competitive bidding would become meaningless.
Even assuming there is substantial evidence of abandonment in this case, the
entire notion of the parties abandoning a public works contract, with its strict
statutory requirements, is anomalous.  General law cities, such as the City of
Thousand Oaks, are statutorily required to award public contracts in excess of
$5,000 to the lowest responsible bidder.  (Pub. Contract Code, § 20162.)  We have
generally not allowed recovery on a quantum meruit basis where there is a defect
in the bidding rendering the contract void.  (Miller, supra, 20 Cal.2d at p. 89.)
Amelco asserts this principle is inapplicable when the underlying contract was
valid when entered into, and that “the competitive bidding laws are irrelevant to
the propriety of the award” in this case.  However, if we were to agree the City’s
numerous changes could result in the public contract being set aside in its entirety,
Amelco would find itself in no different situation, and should receive no different
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treatment, than a contractor who has performed under a void contract.  The City
would not have had the authority to contract with Amelco for a quantum meruit
payment, free from any of the prior contract’s restraints, but would have been
required to bid the project.  “A fortiori the court [is] without authority to abrogate
the bidding statute and make a new contract between the parties which the
defendants were powerless to do.”  (Paterson v. Board of Trustees (1958) 157
Cal.App.2d 811, 819.)
“[I]t is clear ‘that neither the doctrine of estoppel nor any other equitable
principle may be invoked against a governmental body where it would operate to
defeat the effective operation of a policy adopted to protect the public.’ ”
(Kajima/Ray Wilson v. Los Angeles County Metropolitan Transportation Authority
(2000) 23 Cal.4th 305, 316 (Kajima).)  “We have stated that the competitive
bidding statutes are ‘ “enacted for the benefit of property holders and taxpayers,
and not for the benefit or enrichment of bidders, and should be so construed and
administered as to accomplish such purpose fairly and reasonably with sole
reference to the public interest.” ’ ”  (Id. at pp. 316-317.)  It is difficult, however,
to ascertain how the general public benefits by allowing a contractor to claim
abandonment of the public works contract following completion of the work, and
recover for the reasonable value of its work; indeed, just the opposite seems true.
Permitting such recovery would appear to unduly punish the tax-paying public.
Moreover, allowing a contractor to claim, following completion of the work,
that the parties implicitly set aside a public works contract implicates significant
public policy concerns.  Under the abandonment doctrine, the plaintiff need not
demonstrate—and even now Amelco cannot state—at what point the contract was
abandoned.  As one of Amelco’s experts testified, “So there’s no one point in time
where Amelco could have sat back and said, gee, they’ve abandoned the contract,
except maybe at the end when they got all their costs together and they looked
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back and said, wow, what just happened to us.  And I guess that’s when they knew
it was abandoned.”  Amelco’s project manager did not even determine Amelco
had a claim on the project until November 1994, after the work was completed.
Under Amelco’s approach, a certain number of changes may be permissible, but at
some indeterminate point, the next requested change makes the number
“excessive,” the competitively bid contract is set aside, and the contractor recovers
on a quantum meruit basis from the beginning of the project onward.  Such a
vague definition fails to provide any meaningful guidance as to when that line has
been crossed.  Public entities would not receive timely notice of claims that would
allow them to make project management, budget, or procedural adjustments
during the course of construction.  Rather, contractors would be permitted to wait
until a project was completed before giving notice of “too many” changes, thus
creating intolerable uncertainty in the budgeting and financing of construction
projects.
In addition, allowing contractors to recover in quantum meruit for the actual
as opposed to the bid cost of a project would encourage contractors to bid
unrealistically low with the hope of prevailing on an abandonment claim based on
the numerous changes inherent in any large public works project.  One of the
purposes of the public contracting laws is to prevent collusion and favoritism in
selecting contractors.  (Pub. Contract Code, § 100, subd. (d) [Legislature’s intent
in enacting Public Contract Code includes “eliminat[ing] favoritism, fraud, and
corruption in the awarding of public contracts”].)  One can imagine a situation
where a friend of a public official bids extremely low, with the understanding that
numerous changes in the contract, many perhaps not even affecting the contractor,
will be forthcoming.  Such scenarios would simply provide an endrun around the
public works bidding requirements.  Moreover, if abandonment is recognized as a
theory of recovery for public works, “the possibility of significant monetary gain
14
alone may encourage frivolous litigation and further expend public resources.”
(Kajima, supra, 23 Cal.4th at p. 317.)  Finally, “prudence is warranted whenever
courts fashion damages remedies in an area of law governed by an extensive
statutory scheme.”  (Ibid.)
Public Contract Code section 7105 provides in part that a public works
contract required to be awarded by competitive bid, “may be terminated, amended,
or modified only if the termination, amendment, or modification is so provided in
the contract or is authorized under provision of law other than this subdivision.
The compensation payable, if any, for amendments and modifications shall be
determined as provided in the contract.  The compensation payable, if any, in the
event the contract is so terminated shall be determined as provided in the contract
or applicable statutory provision providing for the termination.”  (Pub. Contract
Code, § 7105, subd. (d)(2).)
Amelco contends Public Contract Code section 7105 applies only to
compensation for termination, amendment, or modification of a contract, not to
damages for its abandonment.  Under the abandonment theory, however, the
original contract is set aside and the contractor paid for the reasonable value of its
work.  It is difficult to understand how such a radical change is not a modification
or termination of the public contract subject to section 7105.  Indeed, given a
public works project must generally be governed by a valid contract, abandonment
cannot be one of the changes “authorized under provision of law” contemplated by
section 7105.
Amelco observes Civil Code section 3262, pertaining to mechanic’s liens,
was amended in 1993 to include “abandonment” in subdivision (d)(1) and (2).
Subdivision (d)(1) and (2) specifies that waiver and release forms required from a
contractor to receive progress payments must contain substantially the following
language:  “This release of any mechanic’s lien, stop notice, or bond right shall not
15
otherwise affect the contract rights, including rights between parties to the contract
based upon a rescission, abandonment, or breach of the contract, or the right of the
undersigned to recover compensation for furnished labor, services, equipment, or
material covered by this release if that furnished labor, services, equipment, or
material was not compensated by the progress payment.”  (Italics added.)  Amelco
argues that by this amendment, “the Legislature has clearly recognized the
doctrine of abandonment in the construction contract context.”  Asserting Civil
Code section 3262 is applicable to both private and public contracts, Amelco
argues it evidences a legislative intent “that abandonment claims are valid against
public agencies and not inconsistent with the statutory competitive bidding scheme
it created.”
It is not clear what the Legislature meant in amending the sample forms in
Civil Code section 3262.  The amended language does not, however, ineluctably
mean the Legislature is endorsing the abandonment theory for public contracts.  It
may mean nothing more than if such a claim is available, it is not waived by
signing the release.  Indeed, it is unlikely the Legislature intended to recognize the
abandonment doctrine for public works as well as private contracts.  Such a
conclusion, arguably overturning decades of case law regarding the unavailability
of quantum meruit recovery against a public entity, would no doubt be more
prominently featured than by simply amending a sample form regarding
mechanic’s liens.
While Amelco relies on California abandonment cases, such as Opdyke,
supra, 111 Cal.App.2d 912 and Peterson, supra, 172 Cal.App.3d 628, they are
distinguishable on the ground they involved private, not public parties.  Amelco is
one of the largest electrical contractors in the country, and certainly was aware at
the time it was building this project that public works contracts are the subject of
16
intensive statutory regulation and lack the freedom of modification present in
private party contracts.
Amelco also asserts the City is liable for a breach of its agreement in the
same manner as a private party.  That is correct, and in this case the jury found the
City had breached the contract.  Recovery for a specific breach, however, with its
requirements of causation and damages, is far different from abandonment, in
which the entire competitively bid contract is set aside, and the contractor recovers
on a quantum meruit basis from the beginning of the project onward.
The dissenting opinion broadly refers to “the rule usually applied in this
country.”  (Dis. opn. of Werdegar, J., post, at p. 5.)  It cites, however, no out-of-
state or federal authority upholding the abandonment doctrine in the public works
context.  Rather, it relies solely on the cardinal change doctrine, which as we have
already described, is materially different from abandonment.  (See ante, pp. 9-11.)
B.  Measure of Damages
We next consider whether Amelco adduced sufficient evidence to warrant
instructing the jury on the total cost method of measuring damages.  The City does
not argue total cost recovery is never appropriate against a public agency, only that
such a damages theory is inappropriate here.  For this reason, we do not determine
whether total cost damages are ever appropriate in a breach of public contract
case, but rather whether the theory for such damages was in this case properly
submitted to the jury.
Nor does the City challenge the jury’s finding of breach of contract; rather, it
challenges only the manner in which damages were calculated.  In particular, it
asserts that in order to proceed on a total cost theory Amelco should have been
required to establish (1) the impracticality of proving actual losses directly; (2) the
plaintiff’s bid was reasonable; (3) its actual costs were reasonable; and (4) it was
17
not responsible for the added costs.  (Servidone Construction Corp. v. United
States (1991) 931 F.2d 860, 861 (Servidone); see Aaen, The Total Cost Method of
Calculating Damages in Construction Cases (July 1991) 22 Pac. L.J. 1185, 1195-
1196 (Aaen), citing WRB Corporation v. United States (1968) 183 Ct.Cl. 409, 426
(WRB).)  The Court of Appeal concluded the City had waived this claim by failing
to request an appropriate jury instruction.  However, as we understand the City’s
claim, the City essentially asserts not instructional error, but that there was not
sufficient evidence to warrant instructing the jury on the total cost theory of
damages.  (See Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 572 [a party
is entitled upon request to instruction on every theory supported by substantial
evidence].)
1.  Background
Under a breach of contract theory, the plaintiff must demonstrate a contract,
plaintiff’s performance or excuse for nonperformance, defendant’s breach, and
damage to the plaintiff.  (4 Witkin, Cal. Procedure (4th ed. 1997) Pleading, § 476,
p. 570.)  “ ‘Contract damages are generally limited to those within the
contemplation of the parties when the contract was entered into or at least
reasonably foreseeable by them at that time; consequential damages beyond the
expectation of the parties are not recoverable.  [Citations.]  This limitation on
available damages serves to encourage contractual relations and commercial
activity by enabling parties to estimate in advance the financial risks of their
enterprise.’ ”  (Erlich v. Menezes (1999) 21 Cal.4th 543, 550.)  “[P]redictability
about the cost of contractual relationships plays an important role in our
commercial system.”  (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654,
683.)
18
The total cost method of determining damages is generally disfavored.
(Servidone, supra, 931 F.2d at p. 861 [“A trial court must use the total cost method
with caution and as a last resort”]; WRB, supra, 183 Ct.Cl. at p. 426 [“This theory
has never been favored by the court and has been tolerated only when no other
mode was available”].)  Under this method, damages are determined by
“subtracting the contract amount from the total cost of performance.”  (Aaen,
supra, 22 Pac. L.J. at p. 1187, fn. omitted; see also State of California ex rel. Dept.
of Transportation. v. Guy F. Atkinson Co. (1986) 187 Cal.App.3d 25, 32-34
[upholding application of jury verdict method, which is “used to determine a
rough approximation of damages, especially in sizable construction cases when
mathematical precision is impossible”].)  Before this method may be used, the trial
court bears the initial responsibility of determining that each element of the four-
part test set forth above can be met.  (See Aaen, at pp. 1195-1196; id. at p. 1187
[“Courts have developed a four-part test which must be met before the total cost
method will be used” (fn. omitted)]; cf. Geolar, Inc. v. Gilbert/Commonwealth
Inc. (Alaska 1994) 874 P.2d 937, 945.)  If prima facie evidence under this test is
established, the trier of fact then applies the same test to determine the amount of
total cost or modified total cost damages to which the plaintiff is entitled.  “The
total cost method is not a substitute for proof of causation,” (Aaen, at p. 1190) and
“should be applied only to the smallest affected portion of the contractual
relationship that can be clearly identified.”  (Id. at p. 1198.)  As the United States
Court of Appeals for the Federal Circuit has stated, “Clearly, the ‘actual cost
method’ is preferred because it provides the court . . . with documented underlying
expenses, ensuring that the final amount of the equitable adjustment will be just
that – equitable – and not a windfall for either the government or the contractor.”
(Dawco Construction, Inc. v. United States (Fed.Cir. 1991) 930 F.2d 872, 882,
19
overruled on other grounds in Reflectone, Inc. v. Dalton (Fed. Cir. 1995) 60 F.3d
1572, 1583.)
In Boyajian v. United States (Ct.Cl. 1970) 423 F.2d 1231 (Boyajian), the
United States Court of Claims dismissed certain contract claims because of the
failure to demonstrate proof of damages.  In Boyajian, plaintiff combined all of the
alleged breaches of contract, and “without in any way attempting to relate any
specific damage items to any particular breach, simply claim[ed] the excess of the
entire amount spent in performing the contract over the total contract amount
received.”  (Id. at p. 1241.)  “[T]he proof . . . in effect consisted only of a schedule,
supported by an accountant’s testimony, indicating what plaintiff’s books and
records showed were plaintiff’s total contract costs, the total contract receipts, and
plaintiff’s total loss, being the difference between the costs and the receipts . . . .
[T]his is not in and of itself acceptable ‘proof.’ . . . ‘The costs must be tied in to
fault on defendant’s part.  Plaintiff’s claim is something like an attempt to secure
damages based on the difference between costs and the contract price or a bid
price.’ ”  (Id. at p. 1239.)  “ ‘[P]roof that the plaintiff’s costs exceeded his
payments under the contract would not in the usual case give rise to his right to
recover the difference.’ ”  (Ibid.)  “Recovery of damages for a breach of contract is
not allowed unless acceptable evidence demonstrates that the damages claimed
resulted from and were caused by the breach.”  (Id. at p. 1235.)  “[C]ontrary to
these basic causal-connection damage principles, no attempt is here made to relate
any specific amount of increased costs to any particular alleged breach.  Nor is any
satisfactory explanation given as to why such an attempt was not made or why it
would not have produced reasonably accurate results.”  (Ibid.)  “On this record, it
is not possible to conclude that plaintiff’s total contract loss, i.e., the difference
between plaintiff’s contract expenditures and its contract receipts, is reasonably to
be equated with the increased costs directly resulting from defendant’s alleged
20
breaches.”  (Id. at p. 1236; see WRB, supra, 183 Ct.Cl. at p. 426 [this case fails the
four-part test because of “plaintiff’s complete failure to maintain accurate cost
records during performance” and failure to rebut government evidence that
increased cost is partly plaintiff’s fault].)
Likewise in Huber, Hunt & Nichols, Inc. v. Moore (1977) 67 Cal.App.3d
278, the contractor claimed that the architect’s plans and specifications were
negligently prepared and contained errors and omissions, and that the architects
were negligent and dilatory in approving change orders, approving shop drawings,
and in the overall supervision of the work.  (Id. at p. 289.)  Relying on Boyajian,
supra, 423 F.2d 1231, the court rejected the contractor’s claim that it should have
been entitled to rely on the total cost theory (Huber, at pp. 307-309), stating, “it is
obvious that Contractor could have maintained a proper accounting system to
establish its alleged damage proximately caused by [defendant’s] alleged
negligence, if it had desired to do so.”  (Id. at p. 309.)  “If we were to accept
Contractor’s contention as the law of this state, the result would, for all practical
purposes, nullify all laws regarding competitive bidding on public contracts.
Under such a concept, contractors could submit any bid necessary to obtain the job
knowing that the public agency (or its architects) would be required to pay
whatever costs contractor incurred on the project if contractor could discover some
error or omission however irrelevant in the plans and specifications.”  (Id. at p.
310.)  “In the final analysis what Contractor actually complains of is that the
amount of money which Owner paid Contractor under the 25 [change orders] and
the time allowed for the changes or additional work was not sufficient to
reimburse Contractor for its total cost and total delay.”  (Ibid.)  “It was within
Contractor’s legal power to compute estimated change order costs in a manner
which would compensate Contractor for its total loss.  It failed to do so.”  (Ibid.)
21
2.  Analysis
We conclude Amelco failed to adduce substantial evidence to warrant
instructing the jury on the four-part total cost theory of damages.  In particular,
Amelco failed to adduce evidence to satisfy at least the fourth element of the four-
part test, i.e., that it was not responsible for the added expenses.  A corollary of
this element of the test is that the contractor must demonstrate the defendant, and
not any one else, is responsible for the additional cost.  (S.W. Electronics &
Manufacturing Corp. v. United States (Ct.Cl. 1981) 655 F.2d 1078, 1087
[“defendant is not liable for all of the added expense which plaintiff incurred and
therefore plaintiff’s total cost claim must fail”]; Aaen, supra, 22 Pac. L.J. at
p. 1202 [In complex situations that may involve multiple prime contractors, the
“plaintiff must prove not only that he or she was not liable for the extra cost in this
situation but that the defendant was responsible”].)
Here, as in Boyajian, supra, 423 F.2d 1231, Amelco alleged and the jury was
instructed it could find a breach of the contract on numerous grounds, including
breach of the implied warranty of correctness, breach of contract by preventing or
hindering plaintiff’s performance of the contract, providing an inadequate design,
making excessive changes to the project, making changes in a disorganized
manner, failing to properly coordinate the work of the multiple prime contractors,
accelerating Amelco’s work, and failing to make payments to Amelco in a timely
manner.1  Amelco never attempted to demonstrate how a particular alleged breach
                                                
1
The jury was instructed regarding the breach of contract claim, “By
furnishing plans and specifications to bidders on a construction project, the owner
thereby warrants that the plans and specifications are reasonably accurate and
suitable for their intended purpose.”  “The City breached the contract if the City
provided important facts about the project to Amelco, at bid time, such as in the
plans or specifications, which Amelco relied upon, but the City:  1. Failed to
disclose other material facts which materially qualified the facts which were
(footnote continued on next page)
22
caused certain damages.  Rather, Amelco conceded no effort was made during the
project to distinguish between those inefficiencies that were Amelco’s and those
believed to be the responsibility of the City (and presumably other prime
contractors and subcontractors).  Moreover, Amelco conceded it had been
inefficient in performing the contract and that it had reduced its claim by an
                                                                                                                                                
(footnote continued from previous page)
disclosed; or 2. Failed to disclose other material facts, the absence of which made
the facts disclosed likely to mislead Amelco; or 3. Failed to disclose other material
facts which were known or accessible only to the City, and which the City knew
were not known by Amelco, [and] not reasonably discoverable by Amelco.”  The
City “breached the contract if [it] prevented or hindered plaintiff[s] . . .
performance of the contract.”  In addition, the jury was instructed, “Amelco claims
the City breached and/or abandoned the contract by doing the following:  1.
Providing an inadequate design; 2. Making excessive changes to the project; 3.
Making changes in a disorganized manner; 4. Failing to properly coordinate the
work of the multiple prime contractors; 5. Accelerating Amelco’s work; and 6.
Failing to make payments to Amelco in a timely manner.”
“If you find that the City breached or abandoned the contract, then Amelco
is entitled to recover the reasonable value of the work performed by it less the
payments made by the City, and less any costs incurred by Amelco which are not
fairly attributable to the City.”  “The measure of damages for the breach of
contract is that amount which will compensate the injured party for all the
detriment or loss caused by the breach, or which in the ordinary course of things,
would [be] likely to result therefrom.  The injured party should receive those
damages naturally arising from the breach, or those damages which might have
been reasonably contemplated or foreseen by both parties, at the time they made
the contract, as the probable result of the breach.  As nearly as possible, the injured
party should receive the equivalent of the benefits of performance.  [¶]  Damages
must be reasonable.  A party cannot receive a greater amount as damages than he
could have gained by full performance of the contract.”  “[O]nce a Plaintiff . . .
proves that it is reasonably certain that it has suffered a particular loss or type of
harm as a result of the breach by the Defendant . . . , the law does not require
Plaintiff . . . to prove the exact amount of that loss or harm.”  “[Y]ou may not
award any damages for a loss or harm resulting from a breach of contract if
Defendant proves that Plaintiff could have avoided that loss or harm by making
reasonable efforts or expenditures once it became aware of the breach.”
23
apparently arbitrary 5 percent, or $116,843, to account for any inefficiency on its
part in performing the contract.  For the remaining 95 percent, the jury was simply
asked to assume this inefficiency was the fault of LMB.
Nor did Amelco demonstrate when any particular breach occurred.  Rather, it
sought to recover all of its costs over the life of the contract if the jury found at
any undetermined point the contract had been breached.
Amelco asserts we have applied the total cost method in cases involving
breach of the implied warranty of correctness, citing Warner Constr. Corp. v. City
of Los Angeles (1970) 2 Cal.3d 285, and City of Salinas v. Souza & McCue
Construction Co., Inc. (1967) 66 Cal.2d 217, disapproved on other grounds in
Helfend v. Southern Cal. Rapid Transit Dist. (1970) 2 Cal.3d 1, 14.  At the outset,
it is not clear the jury here found the City had breached the implied warranty of
correctness.  As noted, the jury was instructed on several possible breach theories,
and was not required to indicate which theory its verdict was based on.  In any
event, both Warner and City of Salinas appear to award only those damages
attributable to the breach, not the contractor’s total costs under the entire contract.
(Warner, at p. 301 [plaintiff should recover additional cost of construction
attributable to city’s misrepresentation]; City of Salinas, at p. 225 [difference
between fair and reasonable cost of actual performance, and what it would have
been in the absence of misrepresentation, due to the City’s misrepresentation].)
As noted, Amelco has failed to demonstrate such a causal connection here.
Amelco asserts that even if the jury should have been instructed on the four-
part total cost test, that error was harmless because these factors were adequately
covered by other instructions.  As we view the City’s contention, however, the
issue is whether the jury should have been instructed on the theory of total cost
damages at all.
24
In any event, we disagree the jury was sufficiently guided by the totality of the
instructions that damages had to be linked to a particular breach by the City.  The jury
was instructed, “If you find that the City breached or abandoned the contract, then
Amelco is entitled to recover the reasonable value of the work performed by it less the
payments made by the City, and less any costs incurred by Amelco which are not
fairly attributable to the City.”  Under such global instruction, caused in part by the
misinstruction on abandonment, the jury was led to believe if it found any basis for
breach of contract, regardless of when it occurred in the performance of the contract,
Amelco was entitled to receive damages for the reasonable value of work performed
by it during the life of the contract.  Indeed, relying on this instruction, Amelco
argued to the jury, “If you find either that Amelco’s and the city’s contract was
abandoned or it was breached, the method of calculating the damage is the same.”
Amelco conceded it was unable to identify those costs attributable to the City and
those costs attributable to itself and others.  Hence, it is unclear what evidence the
jury would have looked to in determining those amounts “not fairly attributable to”
the City’s actions.  Nor did other breach of contract instructions clarify the jury was to
correlate the damages to a particular breach, and not simply award damages for the
reasonable value of the work performed over the life of the contract if any breach was
found.
Amelco also asserts that if we fail to uphold the total cost method here,
“[p]ublic entities [will] be motivated to change, mismanage and disrupt problem
projects as much as possible to make it impossible for a contractor to determine
the separate cost of each distinct change.”  Here, Amelco has simply failed to
demonstrate the existence of such impossibility.
Under these circumstances, the jury should not have been instructed to
calculate Amelco’s loss from any breach of contract under a total cost measure of
damages.
25
DISPOSITION
The judgment of the Court of Appeal is reversed, and the part regarding
breach of contract is remanded to the Court of Appeal with instructions to remand
to the trial court for a retrial on the issue of damages.
BROWN, J.
WE CONCUR:
GEORGE, C.J.
BAXTER, J.
CHIN, J.
MORENO, J.
1
DISSENTING OPINION BY WERDEGAR, J.
It has long been the rule in this state,1 in other states,2 and in federal court,3
that when an owner enters into a construction contract with a builder or contractor,
and the owner thereafter “imposes upon the contractor an excessive number of
changes such that it can fairly be said that the scope of the work under the original
contract has been altered” (Peterson, supra, 172 Cal.App.3d at p. 640), the law
provides the contractor a remedy.  When such a situation arises in this state, the
original contract is considered mutually abandoned and replaced with a new
contract that allows the contractor to recoup its actual costs.  (Id. at p. 645.)
                                                
1 
C. Norman Peterson Co. v. Container Corp. of America (1985) 172
Cal.App.3d 628, 640 (Peterson); Daugherty Co. v. Kimberly-Clark Corp. (1971)
14 Cal.App.3d 151 (Daugherty); Opdyke & Butler v. Silver (1952) 111 Cal.App.2d
912 (Opdyke).
2 
See, e.g., Greenlee County v. Webster (1923) 25 Ariz. 183, 199 [215 P.
161, 166]; H.T.C. Corporation v. Olds (Colo.Ct.App. 1971) 486 P.2d 463, 466-
467; Baerveldt & Honig Const. Co. v. Dye Candy Co. (Mo. 1948) 212 S.W.2d 65;
Douglas Const. Inc. v. Marcais (N.Y.App.Div. 1997) 239 A.D.2d 803 [657
N.Y.S.2d 835]; Hayden v. Astoria (1915) 74 Or. 525, 533 [145 P. 1072]; Rhodes v.
Clute (1898) 17 Utah 137 [53 P. 990].
3 
See, e.g., Edward R. Marden Corporation v. United States (Ct.Cl. 1971)
442 F.2d 364, 369-370; Air-A-Plane Corp. v. United States (Ct.Cl. 1969) 408 F.2d
1030; see also Wunderlich Contracting Company v. United States (Ct.Cl. 1965)
351 F.2d 956, 965-966 (finding no cardinal change).
2
Whether labeled an “abandonment” of the contract or a “cardinal change,” 4 the
doctrine is limited to the construction context.  Albeit rarely invoked,5 the doctrine
operates as a safety valve for contractors to recover their actual costs for
construction projects that, through no fault of their own, go out of control, far
beyond the intention of the contracting parties.
Until today, no court, state or federal, has limited this doctrine only to
contractors and builders that contract with a private owner.  Nor, indeed, is this
defendant City of Thousand Oaks’s (the City) main argument, as the City
primarily urges us to abolish the doctrine in its entirety.6  Because the majority
refuses to abolish the doctrine, yet fails adequately to explain why such a limit is
justified by previous authority or supported by present policy concerns, I
respectfully dissent.
I
I begin by setting forth the general rules applicable to public contracts.
Public Contract Code section 20162, which is applicable to cities such as the City,
provides that “[w]hen the expenditure required for a public project exceeds five
thousand dollars ($5,000), it shall be contracted for and let to the lowest
                                                
4 
See generally 11 part 1 California Jurisprudence Third (1996) Building and
Construction Contracts, section 21, pages 30-31 (abandonment); 13 American
Jurisprudence Second (2000) Building and Construction Contracts, section 102,
page 87 (same); Stein, Construction Law (1992) Modification of Construction
Contracts, paragraph 4.02[3], page 4-7 (cardinal change); Keyes, Government
Contracts Under the Federal Acquisition Regulation (2d ed. 1996) Contract
Modifications, section 43.15, page 925 (cardinal change).
5 
Only three reported cases in California deal with the doctrine.
6 
The City in its briefing adopts a fallback position, arguing in the alternative
that limiting the abandonment doctrine to private entities would also be
satisfactory.
3
responsible bidder after notice.”  It is undisputed that plaintiff Amelco Electric
(Amelco) participated in the bidding and was the lowest responsible bidder for the
project at issue in this case.
Civil Code section 1635 is also relevant.  It provides:  “All contracts,
whether public or private, are to be interpreted by the same rules, except as
otherwise provided by this Code.”  This directive is consistent with prior case law,
which holds that once the public bidding is over and the contract awarded, the
“contract between a governmental body and a private party is to be construed by
the same rules which apply to the construction of contracts between private
persons [citation], and the public entity is bound in the same manner as an
individual.”  (Tonkin Construction Co. v. County of Humboldt (1987) 188
Cal.App.3d 828, 831-832; see also Souza & McCue Constr. Co. v. Superior Court
(1962) 57 Cal.2d 508, 510 [holding the state “is liable for a breach of its
agreement in like manner as an individual” and rejecting application of the
doctrine of governmental immunity].)
The general rule applicable to construction contracts with public entities
thus requires that we treat a public entity such as the City the same as any other
contracting party once the public bidding process has terminated and a valid
contract has been awarded.  The majority’s reliance on Miller v. McKinnon (1942)
20 Cal.2d 83 (maj. opn., ante, at pp. 4-5) is thus inapposite, for in that case, the
parties entered into the contract in question without competitive bidding, resulting
in a contract that was void at its inception.  By contrast, Amelco was the lowest
responsible bidder, and that it had a valid contract with the City is undisputed.
As the majority recognizes, the general rule in California is that “[i]n the
specific context of construction contracts, . . . when an owner imposes upon the
contractor an excessive number of changes such that it can fairly be said that the
scope of the work under the original contract has been altered, an abandonment of
4
contract properly may be found.  [Citations.]  In these cases, the contractor, with
the full approval and expectation of the owner, may complete the project.
[Citation.]  Although the contract may be abandoned, the work is not.”  (Peterson,
supra, 172 Cal.App.3d at p. 640, citing Daugherty, supra, 14 Cal.App.3d 151, and
Opdyke, supra, 111 Cal.App.2d 912.)  Under these circumstances, an
“[a]bandonment of a contract may be implied from the acts of the parties”
(Daugherty, supra, at p. 156), and a contractor is not precluded from recovering
the costs expended if it continues to perform the work (id. at pp. 156-157).7
                                                
7 
The majority misreads applicable precedent when it opines that “the Courts
of Appeal have concluded that private parties may impliedly abandon a contract
when they fail to follow change order procedures and when the final product
differs substantially from the original.”  (Maj. opn., ante, at p. 6, italics added.)
Although the failure to follow prescribed change order procedure is mentioned in
the three California cases addressing the abandonment doctrine (Peterson, supra,
172 Cal.App.3d at p. 637; Daugherty, supra, 14 Cal.App.3d at p. 156; Opdyke,
supra, 111 Cal.App.2d at p. 918), none of these cases describes such failure as a
prerequisite to a finding the parties intended to abandon their construction
contract.  I thus agree with the Court of Appeal below when it stated:  “[In prior
cases,] the parties also ignored contractual change order procedures and were
unable to keep accurate cost records.  These facts, however, are not essential
elements of an abandonment claim.  Instead, they are evidence that the number of
changes made to a project was excessive and beyond the original intent of the
parties.  These facts support a finding of abandonment; they are not essential to it.”
In any event, whether or not Amelco reserved the right to seek additional
compensation despite partial attempts to utilize the contractual change order
procedure, and whether or not the City acceded to those attempts, was a hotly
contested issue at trial.  Viewing the facts in a light favorable to the prevailing
party below, as we must, the evidence showed, as the Court of Appeal stated, that
the parties deviated from the contract’s change order procedure by performing
many changes on a “price and proceed” basis, with Amelco reserving the right to
seek additional compensation later, rather than following the procedure described
in the contract.
5
The legal basis for this rule is the recognition in law, that when a
contractee’s changes to a construction contract are so numerous and substantial
that the contractor is no longer building the project the parties originally intended
be built, fairness requires that the contractor be afforded a remedy.  The basis of
this remedy is not dependent on the private or public character of the contractee.
Indeed, the majority cites no authority in this state or any other jurisdiction in this
country that recognizes the public/private distinction in this context.  In fact, the
rule usually applied in this country leans in a direction contrary to the majority’s
rule here, for building contractors that enter into construction contracts with the
federal government are afforded a remedy under the analogous cardinal change
doctrine when the government “effects an alteration in the work so drastic that it
effectively requires the contractor to perform duties materially different from those
originally bargained for.”  (Allied Materials & Eq. Co. v. United States (Ct.Cl.
1978) 569 F.2d 562, 563-564.)  Of course, all federal cases applying the federal
cardinal change doctrine involve a public entity as the contractee, namely, the
federal government.
Setting aside the majority opinion’s complete absence of supporting legal
precedent, I am also unpersuaded by the majority’s sole supporting rationale that
permitting Amelco to recover against a public entity will render competitive
bidding laws “meaningless.”  (Maj. opn., ante, at p. 11.)  Although circumvention
of competitive bidding laws is a concern, no facts in this case suggest Amelco
somehow evaded the applicable competitive bidding laws.  Instead, viewing the
facts in a light favorable to Amelco, the prevailing party below (Bickel v. City of
Piedmont (1997) 16 Cal.4th 1040, 1053), it appears the City let the project out for
bid before its plans were sufficiently complete to permit knowledgeable and
informed bidding by building contractors, placed itself under an unreasonable time
pressure by booking entertainment into the new facility without allowing a
6
reasonable amount of time to complete the project, and then imposed numerous
and substantial changes to the project while giving Amelco no extra time to
complete the additional work.  As the Court of Appeal noted, “there was
substantial evidence that City abandoned the contract by changing every aspect of
the electrical work.  City issued 1,018 detail sketches changing, clarifying or
correcting the original contract drawings.  Two hundred and thirteen of these were
electrical sketches and at least 248 directly impacted Amelco’s work.  None of the
witnesses, including two of City’s expert witnesses, had ever been involved in a
project with as many sketches as this one.”  “By the time construction was
completed, City had changed every part of the electrical work at least once,” in
one room alone making more than 40 changes.  The concern that allowing
recovery under the abandonment doctrine might improperly reward a contractor
that circumvented bidding procedures designed to protect the public from fraud is
not implicated by the facts of this case.
Moreover, the majority’s argument that applying the abandonment doctrine
against a public entity like the City “would encourage contractors to bid
unrealistically low with the hope of prevailing on an abandonment claim” (maj.
opn., ante, at p. 13) is fallacious.  To believe a contractor would deliberately
submit an abnormally low bid in hopes of obtaining a job and, once obtaining it,
would expend the time and expense of completing it, with the intention of
thereafter incurring the high cost—in dollars, delay and inconvenience—of
modern litigation to recoup several years later its additional expenses, defies
common sense.  Such a hypothetical contractor, moreover, would also have to
hope the public entity would make so many substantial changes to the original
project that a plausible claim of abandonment could be made.  Were insufficient
changes imposed, the contractor would simply be left to bear the losses of its
below-market bid.  The dearth of cases asserting abandonment (see fn. 5, ante)
7
bespeaks the difficulty of establishing it.  The majority’s argument ignores
practicality.
Contrary to the majority’s view that recognition of the abandonment
doctrine in the context of public contracts would compromise the public welfare,
the doctrine may be seen actually to benefit the public.  First, its recognition would
deter public entities from prematurely putting a project out to bid, motivating them
instead, as the Court of Appeal reasoned, first to determine what they want built
with adequate plans and specifications so that intelligent competitive bidding can
take place.  By this, the public as well as the contracting agency and contractors
would benefit.  Second, its availability would allow a contractor faced with a
project whose very character has been altered by excessive changes to finish the
project (clearly in the public interest) and recoup its actual cost, rather than the
alternative, which would be to stop building, thereby requiring the public agency
to draw up plans, allow for new bidding and award a new contract, with all the
delays and increased costs attendant thereto.
The majority also purports to find “significant public policy concerns”
(maj. opn., ante, at p. 12) in the fact that Amelco cannot pinpoint the exact time
and date the contract was abandoned.  This argument has two answers.  First, the
majority’s concern betrays a misunderstanding of the abandonment doctrine itself,
for unlike the traditional doctrine of abandonment in which both sides to a contract
expressly announce their intention to abandon it, releasing both sides from their
respective duties under the contract (also called mutual rescission; see Pennel v.
Pond Union School Dist. (1973) 29 Cal.App.3d 832, 837-838), abandonment in
the construction context is different, both because the contractor is not released
from the obligation to complete the project, and because an abandonment in the
construction context results from the aggregation of numerous changes to the
contract over time, and not at an identifiable moment in time.
8
The difference was explained in Peterson, supra, 172 Cal.App.3d at page
640:  “[Traditional] abandonment [of a contract] may start with an intent to
abandon by one or both of the contracting parties and conclude with an agreement
by each that the contract is terminated and of no further force and effect.  Using
this analytical approach, completion of the contract would be inconsistent with a
holding that a contract was abandoned.  [¶] In the specific context of construction
contracts, however, it has been held that when an owner imposes upon the
contractor an excessive number of changes such that it can fairly be said that the
scope of the work under the original contract has been altered, an abandonment of
contract properly may be found.  [Citations.]  In these cases, the contractor, with
the full approval and expectation of the owner, may complete the project.
[Citation.]  Although the contract may be abandoned, the work is not.”
Second, the majority’s concern over the absence of a specific time and date
of abandonment goes to the viability of the doctrine itself, and not just to its
application to public entities.  Thus, it is not only public entities that “would not
receive timely notice of claims that would allow them to make project
management, budget, or procedural adjustments during the course of
construction.”  (Maj. opn., ante, at p. 13.)  Private parties also would lack such
notice.  The majority’s concern in this regard thus does not advance its proposition
that the abandonment doctrine should be limited to private contractees.
The only plausible support for the majority’s conclusion is Public Contract
Code section 7105, subdivision (d) (hereafter section 7105(d)).  That statute
provides:  “(d) (1) Where authority to contract is vested in any public agency,
excluding the state, the authority shall include the power, by mutual consent of the
contracting parties, to terminate, amend, or modify any contract within the scope
of such authority.  [¶] (2) Paragraph (1) shall not apply to contracts entered into
pursuant to any statute expressly requiring that contracts be let or awarded on the
9
basis of competitive bids.  Contracts of public agencies, excluding the state,
required to be let or awarded on the basis of competitive bids pursuant to any
statute may be terminated, amended, or modified only if the termination,
amendment, or modification is so provided in the contract or is authorized under
provision of law other than this subdivision.  The compensation payable, if any,
for amendments and modifications shall be determined as provided in the contract.
The compensation payable, if any, in the event the contract is so terminated shall
be determined as provided in the contract or applicable statutory provision
providing for the termination.”  (Italics added.)
The provision in section 7105(d) limiting “terminations” of public contracts
that are subject to competitive bidding laws would apply here if, by “termination,”
the statute means to include “abandonment.”  But that the Legislature meant to
include abandonment of a construction contract is not evident.  Certainly the plain
meaning of the word “terminations,” as used in section 7105(d), does not clearly
embrace “abandonment,” which is more akin to a mutual rescission.  All three
California cases relying on the abandonment doctrine in the construction context
(Peterson, supra, 172 Cal.App.3d 628; Daugherty, supra, 14 Cal.App.3d 151;
Opdyke, supra, 111 Cal.App.2d 912) preceded the earliest version of section
7105(d) by several years (see Stats. 1990, ch. 694, § 6, pp. 3261-3263 [adding
Pub. Contract Code, former § 7104, subd. (d)]), a sequence suggesting the
Legislature did not intend “termination” and “abandonment” to be synonymous.
Had the Legislature desired to affect the abandonment of a public construction
contract, knowing as it must have that applicable appellate opinions dealing with
construction contracts spoke in terms of an “abandonment,” in distinction from a
“termination,” it could readily have used the word “abandonment.”  (See People v.
Superior Court (Lavi) (1993) 4 Cal.4th 1164, 1178-1179, fn. 9 [Legislature
presumed to be aware of existing case law].)  As the Court of Appeal correctly
10
observed, there is a presumption that statutes do not, by implication, repeal
established common law rules; thus, a statute generally will be construed to avoid
conflict with the common law.  (California Assn. of Health Facilities v.
Department of Health Services (1997) 16 Cal.4th 284, 297.)  Because Public
Contract Code section 7105 does not expressly repeal the established common law
rule that the contractual liability of a public agency is the same as that of a private
individual, we should not presume it was intended to do so.  Accordingly, I
conclude that section 7105(d) does not require reversal in this case.
There being no authority or persuasive reason to prohibit application of the
abandonment doctrine to construction contracts with public entities, I dissent.
WERDEGAR, J.
I CONCUR:
KENNARD, J.
1
See next page for addresses and telephone numbers for counsel who argued in Supreme Court.
Name of Opinion Amelco Electric v. City of Thousand Oaks
__________________________________________________________________________________
Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 82 Cal.App.4th 373
Rehearing Granted
__________________________________________________________________________________
Opinion No. S091069
Date Filed: February 4, 2002
__________________________________________________________________________________
Court: Superior
County: Ventura
Judge: Joe D. Hadden
__________________________________________________________________________________
Attorneys for Appellant:
Mark G. Sellers, City Attorney; Negele & Associates, James R. Negele; Lascher & Lascher and Wendy C.
Lascher for Defendant and Appellant.
Parker, Milliken, Clark, O’Hara & Samuelian, Brown, Winfield & Canzoneri, Nowland C. Hong, Michael
M. Mullins and Michael S. Simon for the League of California Cities as Amicus Curiae on behalf of
Defendant and Appellant.
__________________________________________________________________________________
Attorneys for  Respondent:
Watt, Tieder, Hoffar & Fitzgerald, Michael G. Long, Gregory J. Dukellis and Dwight C. Hirsh for Plaintiff
and Respondent.
Kamine, Steiner & Ungerer, Kamine Ungerer, Bernard S. Kamine, Matt Steiner and Joseph M. Rossini for
Engineering Contractors’ Association as Amicus Curiae on behalf of Plaintiff and Respondent.
Monteleone & McCrory, Thomas P. McGuire and Joseph C. Malpasuto for Southern California Contractors
Association as Amicus Curiae on behalf of Plaintiff and Respondent.
Crowell & Moring, Donald E. Bradley; Rogers Joseph O’Donnell & Phillips, Neil H. O’Donnell and Aaron
P. Silberman for the Associated General Contractors of California as Amicus Curiae on behalf of Plaintiff
and Respondent.
Perkins & Miltner and Timothy E. Salter for the National Electrical Contractors Association, District Nine
as Amicus Curiae on behalf of Plaintiff and Respondent.
Case, Ibrahim & Clauss, Brian S. Case, F. Albert Ibrahim and Charles W. Losness for Associations of
Specialty Contractors as Amici Curiae on behalf of Plaintiff and Respondent.
2
Counsel who argued in Supreme Court (not intended for publication with opinion):
Wendy C. Lascher
Lascher & Lascher
605 Poli Street
Ventura, CA  93002-2285
(805) 648-3228
Nowland C. Hong
Brown, Winfield & Canzoneri
300 South Grand Avenue, Suite 1500
Los Angeles, CA  90071-3125
(213) 687-2100
Michael G. Long
Watt, Tieder, Hoffar & Fitzgerald
3 Park Plaza, Suite 1500
Irvine, CA  92614
(949) 852-6700