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 general contractor on a public works project based

on the abandonment theory because the subcontractor and the

general contractor were private contracting parties with a

separate contract. The appellate court cited Amelco as

recognizing the difference between contracts with public

entities (where competitive bidding applies) against contracts

between two private parties (where competitive bidding does...