On October 31, 2011, the Washington Court of Appeals issued an unpublished opinion, Coastal Constr. Grp., Inc. v. Stellar J. Corp, which upheld that the “modified total cost” method of calculating damages. The “modified total cost” method allows a contractor to calculate its damages based on the total cost of the project (actual cost of the project plus a mark-up less the contractor’s revenue), but modifies the total cost figure to account for the contractor’s overruns for which it is responsible. Generally, for a contractor to be able to recover damages based upon the modified total cost method, the contractor must show that its bid was reasonable, the other party caused overruns, and that the contractor accounted for any overruns which it caused. The facts of the Coastal case are as follows:
In 2004, the City of Chehalis awarded a contract to Stellar J Corporation (“Stellar”) to build a temporary bypass pumping system to maintain flow of sewage until new pumping stations were fully operational. Coastal Construction Group, Inc. (“Coastal”) subcontracted with Stellar to perform electrical work, Coastal’s subcontract amount was $160,597.69. In addition to the subcontract, Coastal and Stellar entered into a separate purchase order agreement pursuant to which Coastal was to supply two motor control centers to Stellar for $190,454. The purchase order required that the final delivery of the motor controls centers occur on or before August 15, 2005. Coastal in turn, contracted with Tacoma Electrical Supply, LLC (“TES”) to supply the two motor control centers.
During the course of performance there were numerous project delays, including delays by Stellar’s other subcontractors. The new pump buildings were completed in December 2005, rather than September 2005. Coastal delivered its motor control centers on January 19, 2006, instead of August 15, 2005. The project was scheduled to finish in November 2005, but was not complete until May 2006. Coastal continued its work until October 2006.
Stellar paid Coastal’s invoices late and then stopped paying Coastal all together, blaming Coastal for the delay to the project. Coastal did not pay TES for its motor control centers. Coastal, in 2006, estimated the unpaid amount owed it at $92,690.33, not accounting for $18,142.24 in retainage.
In July 2006, Coastal initiated a suit in Lewis County against Stellar and TES for breach of contract. Stellar’s bonding company (Travelers Casualty and Surety Company) was also named in the suit. The jury returned a verdict in favor of Coastal on all questions. The final verdict against Stellar was for $809,921.71 (Travelers was also designated as a judgment debtor). The jury awarded Coastal $270,056.12 on the subcontract and $52,000 on the purchase order. The remaining verdict amount consisted of pre-judgment interest, post-judgment interest, and attorneys’ fees and costs.
One of the issues at trial was whether Coastal had submitted its claim on the “impermissible total cost” method basis. When the total cost method is employed the a contractor calculates its damages by determining the total cost of the project (marked up) and subtracting its bid amount (or revenue received). The total cost method assumes that the other party is responsible for all additional overruns. The Court of Appeals, in reliance on Seattle Western Industries, Inc. v. David A. Mowat determined that Coastal’s damages were calculated using the “modified total cost” method and not the “total cost” method. The court held that using the modified total cost approach is appropriate because Coastal’s expert considered the cost for which Coastal was responsible, and the financial impact of the delay that Coastal had to the project, Coastal’s computation of damages using the “modified total cost” method was proper. Coastal had also shown that its bid was reasonable.
The case is unpublished and, therefore, does not serve as precedent for future cases, however, it is instructive for those who may bring future claims for damages calculated based upon the “modified total cost” method.