July 1st, 2016

In County of Galveston v. Triple B Services, LLP, 2016 WL 3025261 (Tex. Civ. App. May 26, 2016), the Court of Appeals of Texas held a contractors’ breach of contract claim against a county fell within the scope of sovereign immunity waiver for construction contracts.  The Court determined the disruption damages sought by the contractor were "a direct result of owner-caused delays,” and the Texas statute providing limited waiver of sovereign immunity for delay damages was applicable.

Galveston County (the “County”) entered into a construction contract (the “Contract”) with contractor Triple B. Services, LLP (the “Contractor”) to expand a three-mile stretch of road.  The construction contract provided the County was responsible for moving utilities. The Contract established a “baseline schedule” that was created by the County’s engineer.  The baseline schedule showed a starting date with unhindered access along the area of the road where the utilities were located. The Contract allowed for "delay damages" if the Contractor's request for those damages "is determined to be compensable." 

The County did not move the utilities until one year after the date anticipated by the plans.  The Contractor, nevertheless, completed its work within the contract time.  The Contractor then sued the County, claiming it incurred additional costs, including setting and resetting barricades, extending field office overhead, as well as additional labor and equipment, as a result of the County’s delay in moving the utilities.  The County moved to dismiss the case on the basis the trial court lacked subject matter jurisdiction because the statute waiving a county’s sovereign immunity for construction contracts, section 262.007, only waives immunity for delay damages, and the Contractor was seeking disruption damages.  The County relied heavily on the testimony of the Contractor’s expert that the damages resulted from the County’s delay in moving the utilities.  The trial court denied the County’s motion.

On appeal, the Contractor conceded that its "disruption damages" do not meet the definition of "delay damages" as traditionally understood in construction law.  The Contractor argued, however, that the statutory waiver of sovereign immunity for damages that are "a direct result of owner-caused delays or acceleration," includes more than "delay damages" as defined under construction law: "Disruption and lost productivity costs are … recoverable damages under the clear meaning of the words of the statute." 

The Court of Appeals of Texas analyzed the definitions of delay damages and disruption damages and concluded that section 262.007 allows a claim for disruption damages against a county "if the disruption damages directly result from the county's delay in performance of its contractual obligations…."  The Court focused on the Contractor’s expert testimony regarding the disruption damages.  The expert examined the daily work summaries, the manner in which the project was intended to be executed and the manner in which the project was actually executed.  The expert testified the Contractor was forced to adjust its approach to accommodate the County’s delay, including segmenting the work into smaller sections of the roadway, adding a number of crews because they were working in so many different areas and increasing the amount of work for the clean-up crew. 

Although the Contractor on the project completed its work within the baseline schedule, the Contractor was able to show through expert testimony that the disruption damages the Contractor was seeking were as a result of the County’s delay.  This Court’s decision provides a helpful reference for the type of expert evidence that is necessary to establish recoverable disruption damages, including modifications to the execution of the project that require significant increases in man power, equipment and costs.