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If It Looks, Walks, and Talks Like A Contract, It’s Probably A Contract: California Court of Appeal Affirms Job Order Contracts Are Enforceable Agreements

December 10, 2020

By Jennifer Tung

In a big win for public agencies, and school districts in particular, the California Court of Appeal recently affirmed the validity of public work job order contracts as enforceable contracts. In the first published opinion on the subject, the Court of Appeal rejected the argument by the contractor in Los Angeles Unified Sch. Dist. v. Torres Constr. Corp. (2020 WL6737473) that job order contracts are simply agreements to negotiate a final contract sometime down the line.

Established by state statute, job order contracts (“JOC”) are competitively bid contracts, generally for the performance of minor construction, renovation, or alteration work involving varied tasks, such as roofing, electrical, or plumbing. The JOC is based on a unit price book that sets forth detailed pricing of various tasks to which a contractor’s bid factor is applied. After award of the JOC, specific work is authorized under the JOC by issuing individual work orders on an as-needed basis.

Here, Torres Construction Corporation (“Torres”) was the successful bidder on multiple JOCs with the Los Angeles Unified School District (“LAUSD”) to modernize LAUSD’s kitchen and electrical equipment. After this work was provided and paid for, LAUSD discovered through a contractually permitted audit that Torres had overcharged LAUSD for its work. As a result, LAUSD sued Torres for breach of contract based upon the JOCs.

In the trial court, Torres claimed LAUSD should lose its case as a matter of law because the JOCs could not form the basis of LAUSD’s breach of contract claim since they were not enforceable contracts. Instead, according to Torres, the JOCs were only agreements to negotiate further contracts (i.e., the work orders issued under each JOC) in the future. Thus, Torres contended, if LAUSD wanted to sue for breach of contract, it should have done so based on the work orders, which it did not do.

The trial court rejected Torres’ argument. The Court of Appeal agreed with the trial court for a number of reasons. In particular, the JOCs— which included 90-page long General Conditions—contained every key term of future work orders, except for their specific scopes. The lack of scopes of work, however, was not fatal to LAUSD’s claim for breach. On the contrary, once the scope for a work order was established, Torres was required to provide a binding proposal that priced the work using the already-agreed upon unit pricing and bid factor set forth in the JOC. This, the Court of Appeal reasoned: “is arithmetic, not negotiations.”

Torres also contended that the JOCs were not enforceable contracts because: LAUSD was permitted to terminate the JOC if Torres failed to timely submit a work order proposal; and there was no expectation that Torres would build or bill anything until LAUSD issued a work order after receiving Torres’ proposal.

Not so, the Court of Appeal said. Instead, it saw no difference between LAUSD’s right to terminate Torres for its failure to timely submit a work order proposal and any other termination provision set forth in standard construction contracts. Additionally, Torres was contractually bound to perform in accordance with the terms of its proposal, even without the issuance of a formal work order by LAUSD. Finally, the Court of Appeal affirmed that, even if a work order was necessary for damages, work orders are expressly incorporated into and part of the JOCs. Thus, any cause of action alleging breach of the JOC is sufficient to include a breach of work orders issued thereunder.

For many reasons, public works are subject to more (and stricter) regulations than private ones, including as a way of increasing government transparency and safeguarding taxpayer money. With its decision in Los Angeles Unified Sch. Dist. v. Torres Constr. Corp., the Court of Appeal affirmed that seeking redress for breach of a JOC is one of the ways in which public agencies can further those objectives.

Jennifer Tung is an associate attorney at Hunt Ortmann, and focuses her practice on a broad array of matters, including breach of contract claims and construction defect litigation. Ms. Tung has represented a diverse client base including, owners, contractors, transportation companies, insurers, universities, and health care providers. If you would like additional information about the subject matter of this bulletin, please contact Ms. Tung at tung@huntortmann.com.

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