Opinion ID: 2514285
Heading Depth: 1
Heading Rank: 8

Heading: Total Cost Method of Calculating Damages

Text: [ś 51] The total cost method compares the actual costs incurred, plus profit, to the bid amount and seeks the difference. Cushman, supra § 34.02. It is disfavored primarily because it attributes all responsibility to the owner without establishing a clear causal connection between the owner's breach and the increased costs. Id. In Frost Constr. Co. v. Lobo, Inc., 951 P.2d 390, 397-98 (Wyo. 1998), a breach of contract case, this Court said: The proper measure of damages is the amount of the contractor's extra costs directly attributable to the ... breach [ ]. Obviously, the preferable method for calculating such losses would be to itemize and total the cost of each piece of equipment or material and each man hour necessitated by the unanticipated conditions encountered in performing the contract. Such exactness is not always possible or necessary. The total-cost method of computing recovery, while generally disfavored by the courts, is permissible where the breach or unexpected conditions pervade substantial areas of performance.... [T]he requirements for use of the total-cost method ... [are proof that]: (1) the nature of the particular losses make[s] it impossible or highly impracticable to determine them with a reasonable degree of accuracy; (2) the plaintiff's bid or estimate was realistic; (3) its actual costs were reasonable; and (4) it was not responsible for the added expenses.... (citations omitted). [ś 52] We applied these principles in Frost to uphold the district court's use of the total cost method for determining contract damages. In Frost, the parties entered into an oral contract in which Frost subcontracted to perform paving work on Lobo's highway construction project. After entering into the original agreement, Frost attempted to add conditions to the agreement. When Frost submitted a new contract containing the conditions and failed to sign and return the original agreement, Lobo hired another company to perform the paving work. Frost filed a breach of contract action and Lobo counter-claimed for breach of contract. The district court concluded Frost breached the contract by failing to perform the paving work and awarded damages based upon the total cost method. We affirmed, finding that the breach pervaded Frost's entire obligation under the contract. See also State Highway Comm'n, 688 P.2d at 880 (holding that use of the total cost method was appropriate under the circumstances). [ś 53] As reflected in Frost, the preferred method of calculating breach of contract damages under Wyoming law is to itemize the extra costs directly caused by the breach. However, where such precise itemization is not possible, use of the total cost method is permissible if the breach substantially affected performance and the contractor proves the requisite elements. Wyoming has recognized that a breach of the implied covenant of good faith and fair dealing may be actionable in contract for compensatory damages. Cathcart, ś 24, 123 P.3d at 589; Shrader, 882 P.2d at 825. Thus, as is the case for breach of contract damages, damages for breach of the implied covenant may be calculated using the total cost method when the breach substantially affected performance and the requisite elements are proven. [ś 54] As noted, the City claims it was error to allow the jury to consider the total cost method because HCI did not prove the necessary elements. On that basis, the City moved at the close of the evidence for judgment as a matter of law. Considering the evidence in the light most favorable to HCI as it was required to do, the district court denied the motion and submitted the question of damages to the jury. The City renews its claim of error on appeal. [ś 55] HCI responds that it proved the required elements of the total cost method; however, that method was only one of the methods used to calculate its damages; therefore, it would not have been appropriate to single out the total cost method for instruction; the general contract damages instruction the district court gave adequately informed the jury concerning the applicable law; and, in any event, the jury did not award damages based upon the total cost method. [ś 56] To the extent the City claims error in the denial of its motion for judgment as a matter of law on the total cost method, we review the district court's decision de novo, meaning we examine the record anew and afford no deference to the district court's views. Johnson, ś 8, 93 P.3d at 995. If the evidence, viewed in the light most favorable to HCI, permits more than one reasonable inference or the inferences favorable to the City are subject to doubt, the matter was properly for the jury to decide and the district court did not err in denying the motion. [ś 57] As noted above, the threshold question for use of the total cost method is whether the breach pervaded substantial areas of performance. Frost, 951 P.2d at 398. Mr. Hladky testified that HCI was ready to send out the purchase order for the precast panels when Mr. Gillette changed the deal. He testified that, but for Mr. Gillette's statement and the City's concurrence with it, HCI probably would have ordered the precast panels within a day or so. Mr. Hladky testified that he needed to order the precast panels so that Winfrey could design where the imbeds would be placed in time for the architect to approve them, a process that could take a month, and allow the concrete subcontractor to pour the walls in time for them to cure before the panels arrived. [ś 58] Mr. Hladky further testified that as the time came and went for Winfrey to meet the deadline, he attempted to obtain a change order to allow him to use Gage Brothers. He testified that HCI still could have met the deadline if the City had approved his request in October. The fact that the approval did not come until November 14 made it impossible for HCI to meet the scheduled deadline for phase 1 of the project. [ś 59] HCI also presented the expert testimony of Norm Davies, the owner of his own construction company with over forty years experience in construction. Mr. Davies testified that the City's handling of the precast panels had a major impact on HCI, forcing the construction company to change its complete as-bid construction plan. He testified that the panels were the critical element on phase 1 of the project and the delay in ordering them prevented HCI from getting the imbeds, pouring the concrete, receiving and installing the panels, and installing the drywall, studs, electrical and mechanical work. Mr. Davies testified that the delay resulting from HCI's inability to order the precast panels also caused further delay due to weather conditions, loss of productivity and unavailability of subcontractors. [ś 60] We have already concluded that the evidence was sufficient to allow a reasonable juror to conclude that the City breached the implied covenant of good faith, first, by failing to allow HCI to perform in accordance with the written specification and, second, by failing to issue the change order. We further conclude that the evidence, viewed in the light most favorable to HCI, permitted more than one reasonable inference as to whether the City's breaches substantially pervaded performance under the contract. Therefore, the district court properly denied the City's motion for judgment as a matter of law on the total cost method if HCI presented sufficient evidence of each of the following elements: (1) the nature of the losses made it impossible or highly impracticable to determine them with a reasonable degree of accuracy; (2) HCI's bid or estimate was realistic; (3) HCI's actual costs were reasonable; and (4) HCI was not responsible for the added expenses. Frost, 951 P.2d at 397. [ś 61] Addressing the first element, we hold that the evidence, viewed in the light most favorable to HCI, permitted more than one reasonable inference as to whether the nature of HCI's losses made it highly impracticable to determine them with a reasonable degree of accuracy. James Adrian, Ph.D., a professor, lecturer and consultant in the field of construction productivity, estimating, scheduling and accounting, testified that the City's change on the precast supplier certification issue essentially resulted in a different project than HCI bid, the cumulative effect of which was difficult to calculate. Dr. Adrian testified that this circumstance made the total cost method the only appropriate method of figuring financial damage. He stated that it was not possible to accurately calculate productivity after a major disruption like what occurred on this project using any other method. Given this testimony, the evidence was sufficient to permit more than one reasonable inference and judgment as a matter of law would not have been appropriate as to the first element necessary for use of the total cost method. [ś 62] HCI also presented evidence establishing a reasonable inference on the second element necessary for use of the total cost method, i.e. that its bid was realistic. Mr. Gillette reviewed all of the bids and recommended that the City award the project to HCI. He testified that he had no problem with the amount of the bid and never felt that HCI underbid the project. In fact, the evidence showed that HCI's bid of $3,623,068 was in line with the architect's estimate of $3,700,000 for what the project would cost. Additionally, Mr. Davies testified that the bid was reasonable. He testified that it was clear from comparing HCI's bid with those of other bidders that HCI did not overbid the project. He also testified from his review of the project documents that it was clear HCI did not underbid the project in order to get the job with the intention of then obtaining change orders to increase its profit. He based this conclusion on the fact that only two of the ninety some change orders were initiated by HCI. This evidence was sufficient to raise a reasonable inference as to the second element necessary for calculating damages using the total cost method. [ś 63] Consistent with the third element, HCI presented evidence that its actual costs were reasonable. Mr. Davies testified that in his opinion, considering that it was a tough time to get qualified tradesmen and personnel on [job] sites, the costs were reasonable. Dr. Adrian also testified that HCI's actual costs were reasonable. Even the City's own expert testified that a high percentage of HCI's actual costs were reasonable. [ś 64] Finally, addressing the last element necessary for use of the total cost method, HCI presented evidence that it was not responsible for the added expenses. Mr. Hladky testified that the City was responsible for the added expenses caused by the delay and that none of the expenses included in HCI's claim were attributable to HCI. Mr. Davies also testified that the responsibility for the added expenses lay with the City. [ś 65] Although the City presented evidence to refute HCI's evidence as to each of the elements necessary for use of the total cost method, it is clear from our review of the record that the evidence presented, viewed in the light most favorable to HCI, supported submission of the total cost method of calculating damages to the jury. We turn to consideration of the City's claim that the district court erred in not adequately instructing the jury concerning the damages evidence.