Recently, in Carnell Constr. Corp. v. Danville Redevelopment & Housing Auth., the federal appellate court covering West Virginia, Virginia and the Carolinas upheld a trial court's determination that a Virginia statute places a cap on the amount that a public works contractor can recover for any changed work, unless the state government previously approved, in writing, the changed work. Any contractors performing (or considering performing) on a Virginia public contract must beware of the Carnell case in this regard and the potentially inequitable results of this decision.
The dispute arose out of a construction contract between Carnell Construction Corporation ("Carnell") and the Danville, Virginia Redevelopment Housing Authority (the "Housing Authority"). Project delays occurred soon after the $793,541 contract was awarded, with each party attributing fault for the delays to the other. Eventually, the Housing Authority advised Carnell that it would not extend the original completion date of June 2009. In addition, the Housing Authority ordered Carnell to demobilize from the project site by the original completion date, regardless of whether the work had been completed. In response, Carnell demobilized from the site more than two weeks before the June 2009 completion date, and requested reimbursement for several instances of unpaid work. The Housing Authority rejected Carnell's request for reimbursement and declared Carnell in default under its performance bond.
Thereafter, Carnell filed a lawsuit against the Housing Authority in a federal court in Virginia, seeking, among other remedies, damages for unpaid change order work. A jury awarded Carnell $515,000 on Carnell's claim for extra work. However, the trial court judge subsequently reduced the damages award to no more than 25% of the original contract value (i.e., to $142,557.57) relying upon Virginia Code Section 2.2-4309. This statute provides:
A public contract may include provisions for modification of the contract during performance, but no fixed-price contract may be increased by more than twenty-five percent of the amount of the contract or $50,000, whichever is greater, without the advance written approval of the Governor or his designee, in the case of state agencies, or the governing body, in the case of political subdivisions.
The trial court determined that Virginia Code Section 2.2-4309 mandates a cap on the amount that a contractor can recover for any changed work, unless the state government previously approved the modification in writing.
Carnell appealed the trial court's ruling arguing, among other things, that Virginia Code Section 2.2-4309 unconstitutionally repeals Virginia common law and, additionally, that it only acts as a recovery cap in instances where a contractor has increased the contract price excessively. After considering Carnell's arguments, the federal appellate court affirmed the district court's application of Virginia Code Section 2.2-4309 in reducing Carnell's damages on its claims for unpaid work.
As noted, the Carnell decision (and the potentially inequitable results that may flow from it) should be on the radar of every contractor that performs Virginia public contracts. Contractors should also be aware that other states have implemented similar caps on changes to work on public projects.
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