PG&E Corporation v. AECOM Technical Services, Inc..

Background

The dispute arose from the Burney K2 Replacement Project, which involved replacing a natural-gas compressor unit and making upgrades at a compressor station near Burney, California. AECOM acted as the design-builder and prime contractor for the project, and JH Kelly entered into a subcontract with AECOM for the construction work.

JH Kelly claimed that the project changed from what it had bid and agreed to perform, creating additional work and more difficult conditions. It also claimed that AECOM repeatedly failed to follow the subcontract’s change-order requirements and pay for changed work. AECOM denied those claims and counterclaimed that JH Kelly breached the subcontract.

AECOM moved for partial summary judgment under Federal Rule of Civil Procedure 56. Summary judgment is appropriate when the evidence shows no genuine dispute about a fact that could affect the outcome and the moving party is entitled to judgment under the law. The court ruled on several categories of JH Kelly’s claimed damages and on its use of a method for calculating lost-productivity damages.

Rulings on Damages

Financing costs

JH Kelly sought $334,018 for interest on two loans. It argued that the loans were needed to address a cash-flow shortage allegedly caused by AECOM’s delayed payments and that the interest was a direct cost of performing the subcontract.

The subcontract waived consequential losses or damages, including losses involving financing. The court recognized that courts have treated similar loan interest as consequential damages, while other decisions have treated financing needed to replace a contractor’s performance as a direct cost. The court did not resolve that legal issue because the record raised factual questions about why JH Kelly obtained the loans and whether they were necessary to replace AECOM’s alleged nonpayment. The court therefore denied AECOM’s motion as to the financing costs, without prejudice to AECOM raising the issue again after the parties present their evidence at trial.

Lost profits

JH Kelly sought a 10.53 percent home-office overhead and profit markup on costs for uncompensated project work. AECOM argued that the subcontract’s waiver of losses of profits barred the claim. JH Kelly responded that the markup represented profits from the subcontract itself and therefore was a direct loss.

The court explained that profits due under the construction contract itself may be direct damages, while profits from future or unidentified contracts generally are consequential damages. Because the parties’ briefs and record citations did not adequately show whether the markup represented profits on uncompensated project work or profits from other projects, the court found that AECOM had not met its initial burden under the summary-judgment standard. The court denied AECOM’s motion as to JH Kelly’s lost-profits claim.

Change-management support fees

JH Kelly sought fees paid to C2G International and the Ibbs Consulting Group for delay and lost-productivity analyses. JH Kelly said the analyses were performed at AECOM’s direction to support change orders. AECOM argued that the fees were barred by a subcontract provision requiring each party to bear its own costs for outside counsel and third-party consultants used to pursue claims against PG&E or other litigation costs.

The court found a factual dispute about whether JH Kelly incurred the fees to pursue claims against PG&E or instead to support change orders during the project. The court therefore denied AECOM’s motion as to the change-management support fees.

Post-project completion costs

JH Kelly sought internal costs, including field and home-office overhead, that it allegedly incurred after project completion while supporting AECOM’s change requests or claims. The court found that the provision concerning outside counsel and third-party consultants did not necessarily apply because JH Kelly described these expenses as internal overhead costs.

However, the court also found that JH Kelly had not identified evidence showing that the costs arose directly and inevitably from AECOM’s alleged nonperformance. The court concluded that the costs were not direct damages and were therefore subject to the subcontract’s consequential-damages waiver. It also concluded that the subcontract’s change-order provision did not authorize overhead expenses incurred after completion that were not tied to specific change orders. The court granted AECOM’s motion as to JH Kelly’s post-project completion costs.

Labor and Materials

The subcontract required JH Kelly to submit invoices with lien waivers as a condition of payment. JH Kelly repeatedly submitted its own waivers rather than the statutory forms attached to the subcontract. The waivers stated that, after payment, JH Kelly released and relinquished “any and all claims and lien rights” for labor and materials furnished through the applicable date.

AECOM argued that the waivers released all labor-and-materials claims through the release date. JH Kelly argued that the language should be limited to lien claims and that the release should extend only to the amount AECOM paid.

The court held that the waiver’s clear language released “any and all claims” for labor and materials through the release date. It rejected JH Kelly’s argument that the late payment made the waivers unenforceable because neither the waivers nor the subcontract stated that untimely payment would have that effect. The court also held that the releases were limited by the effective date, not by the amount paid. The court granted AECOM’s motion for summary judgment as to JH Kelly’s labor-and-materials claims through the release date.

Loss-of-Productivity Method

JH Kelly used the modified total-cost method to calculate loss-of-productivity damages. Under that method, damages are generally calculated by comparing the contract amount with the total cost of performance, with adjustments for unreasonable costs or costs caused by the contractor’s own errors or omissions. The court identified four required showings: the plaintiff must make a preliminary showing that direct proof of actual losses was impractical, that its bid was reasonable, that its actual costs were reasonable, and that it was not responsible for the added costs.

AECOM argued that JH Kelly could not show that direct calculation of its losses was impractical. JH Kelly presented testimony that multiple overlapping impacts—including design changes, delayed permitting and procurement, acceleration, overtime fatigue, and winter conditions—made it impractical to track each impact separately. AECOM presented contrary testimony that JH Kelly’s staff monitored change-order costs effectively.

The court found a genuine factual dispute about whether the overlapping delays and disruptions were caused by AECOM and whether they made direct tracking of productivity losses impractical. It therefore denied AECOM’s motion as to JH Kelly’s methodology for measuring loss-of-productivity damages.

Disposition

Judge Haywood S. Gilliam, Jr. ordered that AECOM’s motion for partial summary judgment was granted in part and denied in part. The opinion did not enter a final judgment on the entire case.