Contract, Project Abandonment: Separate Legal Concepts

Abandonment is a well-known concept on construction projects in California. It generally arises in different situations. One example is when the project's design is so deficient that the contractor performs a massive amount of change orders and extra work. This may qualify as contract abandonment, resulting in the contractor or subcontractor recovering damages against the owner or prime contractor on a quantum meruit theory (with the exception set forth below).

Another example is when a contractor wrongfully ceases working and leaves the project. This is project abandonment.

Several judicial decisions have established the principle of contract abandonment, giving rise to its use in construction litigation. In C. Norman Peterson Co. v. Container Corp. of America (1985) 172 Cal.App.3d 628, the court held that when owner imposed changes (or prime contractor imposed changes vis--vis a subcontractor) are of such a magnitude as to change the scope of the work originally contemplated, it would not be fair to limit the prime contractor (or subcontractor) to the original contract amount. The court pointed out that "although the contract may be abandoned, the work is not." Thus, the court noted that contract abandonment is distinct from project abandonment.

The California Supreme Court's seminal decision, Amelco v. City of Thousand Oaks (2002) 27 Cal.4th 228, held that the concept of the owner's contract abandonment does not apply against a public entity. The court held that "such a theory is fundamentally inconsistent with the purpose of the competitive bidding statutes." Further, the court held that allowing a party in direct privity of contract with the public entity to throw out the contract and recover on a quantum meruit theory raised serious public policy concerns.

Notwithstanding Amelco, a subcontractor on a public works project is entitled to recover against the general or prime contractor for contract abandonment. In Sehulster/Tunnels PreCon v. Traylor Bros. (2003) 111 Cal.App.4th 1328, the court allowed a subcontractor to recover against the...