California Supreme Court Clarifies When Contractors Recover from Public Agencies for Failure to Disclose Information

In 1999, the Los Angeles Unified School District declared a contractor building a new elementary school to be in default and terminated the contract. The district then solicited bids to repair the defective work and to complete the project. Among the documents provided to prospective bidders were the original plans and specifications and a ?current corrections list? that identified the original contractor?s defective or incomplete work. The list itemized only visible defects and expressly noted that the successful bidder would be responsible for unlisted defects…

The replacement contractor discovered extensive latent defects shortly after beginning to work on the project and sought an additional $2.8 million in compensation. The replacement contractor alleged that the defects were not listed on the ?current corrections list? and could not have been detected by simple observation. Even though the district denied that the replacement contractor was entitled to any compensation in excess of its guaranteed maximum price bid of $4.5 million, the district paid the replacement contractor an additional $1 million under an express reservation of rights and then filed this lawsuit for a refund against the contractor and its bonding company…