Shank/Balfour Beatty v. Met. Water Dist

Filed 7/19/07 Shank/Balfour Beatty v. Met. Water Dist CA2/3

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION THREE

Appeal from a judgment of the Superior Court of Los Angeles County, Gregory Alarcon, Judge. Affirmed.

Monteleone & McCrory, Patrick J. Duffy and Scott R. Lane for Plaintiff and Appellant.

The Metropolitan Water District of Southern California, Sydney B. Bennion, Interim General Counsel and Marcia Scully, Deputy General Counsel; Hunt Ortmann Blasco Palffy & Rossell, Dale A. Ortmann and Wahid E. Guirguis for Defendant, Respondent and Cross-Appellant.

_______________________________________

Plaintiff and appellant Shank/Balfour Beatty (SBB) was awarded contracts by defendant and respondent Metropolitan Water District of Southern California (MWD) for the construction of two tunnels underneath the San Bernardino mountains for the purposes of a large water transmission line. Ameron International (Ameron) was SBBs subcontractor for the construction of the reinforced concrete cylindrical pipe to be placed within the tunnels to carry the water.

Shortly after SBB commenced tunneling, substantial amounts of groundwater began to flow through the tunnel. Responding to the concerns of the United States Forest Service (USFS), on whose land the tunnels were located, MWD directed SBB to suspend tunneling operations until the groundwater flow could be decreased to acceptable levels. The suspension lasted approximately one year, during which time SBB, MWD and USFS attempted to engineer a solution to the groundwater problem. In the meantime, Ameron remained idle, awaiting further direction.

After a year had elapsed and tunneling had not been resumed, MWD elected to cut its losses. MWD sent letters to SBB indicating that all tunneling work was to be deleted from the contract, and requesting SBB to complete only a discrete portion of the work it had already begun. The parties dispute whether MWDs letters constituted terminations of the contracts or simply deletions of work under the contracts; the question controls the amount of compensation due SBB and its subcontractors. At the time of MWDs letters, both SBB and Ameron clearly indicated their understanding that the letters terminated the contracts. They now take the opposite view of the facts.

SBB and Ameron did not believe MWD adequately compensated them, under the terms of the contracts, for the one-year suspension and deletion of the work. SBB brought suit against MWD, incorporating Amerons claims on a pass-through basis. Thereafter, MWD reached a settlement with SBB, which resolved all claims except the pass-through claims of Ameron.

The parties proceeded to trial. After a lengthy bench trial, the trial court issued a statement of decision, concluding that MWD had terminated the contracts, and determining the amounts due SBB on Amerons behalf on that basis. As the amount ultimately awarded was less than an amount MWD had offered to settle the litigation, MWD was awarded its costs under Code of Civil Procedure section 998.

SBB appeals, arguing Ameron was entitled to additional funds on three bases: (1) the contracts were not terminated; MWD had simply deleted the bulk of the work; (2) if the contracts were terminated, they were improperly terminated and MWD was in breach; and (3) the contract clause limiting Amerons compensation for its loss of overhead during the suspension is illegal and should not have been enforced. Additionally, SBB argues against the award of Code of Civil Procedure section 998 costs in favor of MWD, but SBB failed to file a notice of appeal challenging this order.

We conclude: (1) the contracts were terminated; (2) SBB is barred from arguing the termination constituted a breach; and (3) the contract clause limiting the compensation for overhead during a period of suspension is enforceable. We therefore affirm the judgment. As SBB failed to appeal the costs award, we do not consider its propriety.

FACTUAL AND PROCEDURAL BACKGROUND

In 1987, MWD first considered the possibility of the Inland Feeder Project, a system of tunnels and pipeline intended to connect the two major aqueduct systems, the California Aqueduct and the Colorado River Aqueduct, in an attempt to improve MWDs operational reliability. Potential sites were studied and numerous reports were generated, including a 1992 Environmental Planning Technical Report on Tunnel Feasibility and a 1993 Environmental Impact Report and Environmental Assessment. A location was ultimately selected which would involve the construction of two tunnels, known as the Arrowhead East Tunnel (AET) and the Arrowhead West Tunnel (AWT). The tunnels were to be constructed on National Forest System land. Additionally, the tunnels were to be located near the San Manuel Indian Reservation.^[1]

From the beginning, the effect of tunneling on neighboring groundwater levels was considered. The 1992 Feasibility Study indicated that the effects on groundwater would be temporary, assuming that aggressive groundwater control measures will be employed during tunnel construction to minimize tunnel groundwater inflows as soon as possible following advance of the tunnel heading.

On September 13, 1993, the USFS issued a special-use permit allowing MWD to construct the AET and AWT tunnels. The permit incorporated by reference a Groundwater Monitoring and Management Plan for San Bernardino National Forest and San Manuel Indian Reservation. The plan set forth a monitoring schedule of nearby groundwater sources, and required mitigation measures to be taken if the loss of groundwater reached predetermined levels.^[2] The special-use permit was to expire on December 31, 2002.

MWD treated the AET and AWT tunnels as two different projects, and solicited bids on them separately. SBB was the successful bidder on both projects. On January 17, 1997, SBB was awarded the contract for the construction of AET. On May 12, 1998, SBB was awarded the contract for the construction of AWT. The contract price of each tunnel was in excess of $85 million. In turn, SBB issued purchase orders to buy the necessary reinforced concrete cylindrical pipe from Ameron, with each order approximating $20 million.

To better understand the facts giving rise to the dispute in this case, a brief overview of the anticipated tunneling process is necessary. First, SBB was to dig through the rock with a tunnel boring machine. As the tunnel boring machine proceeded, it was to apply grout to the rock in order to reduce groundwater flow into the tunnel. Behind the tunnel boring machine, a liner was to be placed in the tunnel to support the rock. The tunnel liner was not, however, designed to be watertight, and groundwater was expected to flow into the tunnel (and out the portal). After the entire tunnel was to have been driven, and then made relatively watertight, the reinforced concrete cylindrical pipe that would ultimately carry aqueduct water would be placed within the tunnel. This pipe was made to order. Ameron was required to obtain special equipment, and to modify a production line at one of its plants,^[3] to be able to create this pipe.

Before tunneling began, the San Manuel Tribe expressed concerns that the AET was too close to tribal land. In response to their concerns, MWD changed the planned path of the tunnel to go further into the mountain. This increased the length of the tunnel. Moreover, as a result of the tunnel realignment, it was predicted that the tunnel would encounter higher groundwater pressures in perpetuity. To protect against these pressures, MWD determined that it would need thicker pipe from Ameron. A change order was issued, resulting in an additional $10 million to be paid to Ameron.

In May 1998, SBB began tunneling for the AET. It began encountering groundwater inflow in October 1998. The amount of inflow steadily increased. In December 1998, the groundwater flow, measured at the tunnel portal, exceeded 800 gallons per minute. SBB performed additional grouting in an attempt to reduce the water inflow. The groundwater flow continued to increase. By March 1999, the flow at the portal was approximately 1400 gallons per minute, and, at one point in February, the flow was as high as 1800 gallons per minute.

There was some dispute as to whether this quantity of groundwater had been anticipated. In any event, SBBs managing partner, Michael Shank, testified^[4] that the tunneling had lowered the water table approximately 200 feet, which was a significant change. On March 9, 1999, the USFS wrote MWD to express [its] concern about what appears to be excessive water discharge from the tunnel. USFS found the discharge of over a million gallons a day to be alarming. Calculating the total loss of water to have been in excessive of 70 million gallons, USFS believed the water loss would most certainly have an adverse impact on the surface resources of National Forest land. USFS indicated that the special-use permit authorizing the tunnels did not specifically authorize the removal of water from Federal land. On that basis, USFS indicated it was considering suspension of tunnel operations pending resolution of the water losses.

Faced with these concerns of the USFS, which echoed similar concerns by the San Manuel Tribe, MWD suspended tunneling operations on April 5, 1999. Paragraph 13 of the General Conditions^[5] of the contract^[6] allowed MWD to suspend work wholly or in part, for an indefinite period or for such period as [MWDs Engineer] may deem necessary. If the suspension was for the benefit of MWD, SBB was entitled to reimbursement for [t]hose actual necessary costs of idle time of construction equipment, idle time of workers, moving of construction equipment, and hauling of materials and equipment which are incurred solely by reason of the delay and which could not have been avoided by the judicious handling of forces, construction equipment and plant, with allowance for overhead and profit as provided in Paragraph 11(c). In turn, paragraph 11(c) fixes the amount of overhead and profit at 15% of actual costs.^[7] The parties agree that Ameron, through SBB, was entitled to compensation for the costs it incurred during the suspension. The only dispute on appeal is whether Amerons recovery for overhead and profit was properly limited to 15% of actual costs.

After tunneling was suspended, SBB intensified its efforts to reduce the groundwater inflow by increased grouting. By May of 1999, USFS verbally informed MWD that groundwater flow must be limited to 500 gallons per minute. By October 1999, SBBs grouting had reduced the groundwater flow to 280 gallons per minute. However, this reduced flow had been accomplished while tunneling was suspended. Further tunneling would have increased the groundwater flow. MWD, SBB, USFS, and the San Manuel Tribe all discussed ways in which the tunneling could be recommenced without negatively impacting the groundwater. No solution satisfactory to all parties presented itself, and the months dragged on.

In February 2000, a meeting was held in which an alternative tunnel technology  a bolted, gasketed approach that would create a virtually watertight tunnel^[8] was discussed. Shank took offense at MWD for dictating the means of mining the tunnel and walked out, asking MWD to go ahead and terminate his contract. Subsequently, tempers subsided and Shank indicated his intent to find a way to move forward on the project.

By April 2000, MWD took stock of its situation. Tunneling had been suspended for a year and it was paying SBB its standby costs. The San Manuel Tribe had indicated a strong preference for a bolted, gasketed approach, which was unprecedented in these particular circumstances and would require additional testing. USFS had been noncommittal and was unwilling to authorize a resumption of tunneling. The special‑use permit was to expire at the end of December 2002 and it was unknown whether the USFS would extend the permit. MWD was considering alternatives to the tunnels, and USFS was considering whether additional environmental review was necessary. Given all of these circumstances, MWD elected to terminate the contract.^[9]

However, MWD did not want SBB to simply walk off the jobsite. Even though tunneling had been suspended, SBB had been engaged in other, related work. Specifically, the contract encompassed not only the tunnels but short pipelines to convey water at each end of the AWT. SBBs work on those pipelines was 90% completed, and MWD wanted SBB to complete that work. Additionally, MWD wanted SBB to clean up the jobsite and demobilize all of its equipment before leaving. This circumstance would provide the basis for SBBs current assertion that MWD did not terminate the contract, but instead deleted the major portion of the work.

Before we set forth the flurry of communications surrounding the termination, we briefly note the three contractual provisions that are at issue. Paragraph 14(a) governs termination. It provides, If conditions encountered during the progress of the work make it impossible or impracticable to proceed with the work, [MWDs] Engineer may order the termination of the Contract. Upon such termination, [MWD] will pay the Contractor fair and reasonable compensation as agreed upon between the Contractor and the Engineer. In the event that no agreement is reached between the Contractor and the Engineer as to fair and reasonable compensation, [MWD] will be liable to the Contractor only for the reasonable value of the work performed and other actual costs sustained by the Contractor.

Deletions of work are governed by paragraph 10 of the contract, regarding Changes. Subdivision (a) of that paragraph provides, in part, If [MWDs] Engineer finds it inadvisable to comply strictly with the specifications, the Engineer may prescribe a modification of requirements or of methods of work; and for such purposes the Engineer may at any time during the life of the Contract, by written order make such changes as he shall find necessary in the design, line, form, location, dimensions, plan, or material of any part of the work or equipment hereinafter specified, or in the quantity or character of the work or equipment to be furnished. Subdivision (c) of paragraph 10 provides means of determining the amount of payment to be deleted from the total amount due when work has been deleted from the contract.

Finally, paragraph 18 sets forth a Protest and Claims Procedure to be followed if the Contractor disagrees with any decision of [MWDs] Engineer. The procedure requires the Contractor to immediately protest, in writing, any decision with which it disagrees. The Engineer is to promptly respond in writing, either confirming, rescinding, or modifying the decision. Within 20 days of receiving the Engineers confirmation, the Contractor must submit a notice of potential claim. This is necessary [i]n order to preserve its right to pursue a remedy. The notice of potential claim is to be followed by a written claim within 25 days. Paragraph 18(d)(5) confirms that decisions of the Engineer that are protested by the Contractor shall be final and conclusive on the Contractor if the Contractor fails to submit a notice of potential claim and a claim in the manners and within the times stated above. If a claim is submitted, the Engineer will respond in writing and the Contractor may then demand an informal meeting to attempt to resolve the dispute. Thereafter, the Contractor may file a civil action against MWD.^[10]

We now set forth the course of communication surrounding the termination of the contract. First, Daniel Tempelis, MWDs program manager, telephoned Shank and told him that the decision was made to terminate the contracts. Then, on April 11, 2000, Tempelis sent two letters to Shank, one for each contract. The AWT letter stated, As you know, tunnel excavation has not commenced on the Arrowhead West tunnel. Investigation of options for completing the project and dialogue with the permitting agency have, with [SBBs] assistance, been ongoing since April 1999. After thorough review, [MWD] has determined that it is not practical to complete the tunneling portion of the work under [the AWT contract]. Accordingly, it is the decision of [MWD]s engineer that all further work related to the completion of this project, except for the work related to pipeline installation, demobilization, and cleanup will be deleted. [] If SBB disagrees with this decision, please comply promptly with the provisions of Section 18 of the General Conditions. The AET letter was similar, indicating the engineers decision that all further work related to the unexcavated portion of the project will be deleted. The letter went on to say, [MWD]s intention is to authorize SBB to proceed with installation of the final tunnel lining, complete site restoration, and related activities as specified, subject to minor changes which may be required by the permitting agency. SBB was again directed to comply with paragraph 18 if it disagreed with the decision.

On April 12, 2000, Shank responded to Tempelis as follows: We acknowledge receipt of your letter dated April 11, 2000, deleting all further work related to the completion of this project, except for the work related to pipeline installation, demobilization, and cleanup . . .  Irrespective of the content and timing of this decision, [SBB] does not agree that this so-called deletion of work is covered by Section 10, Changes, of the General Conditions. This deletion is a constructive termination of the contract for MWDs convenience in accordance with Section 14 of the General Conditions. Should a distinction between these two contract provisions result in [SBB]s not receiving fair and reasonable compensation for this construction termination, this letter should be construed as our notice of claim in accordance with Section 18, of the General Conditions.[^[11]] [] We will notify . . . Ameron . . . and any other affected subcontractors/vendors, that their remaining work has been deleted.

On April 17, 2000, Ameron^[12] sent a letter to SBB, asking that it be forwarded to MWD. Amerons letter stated, Ameron objects to the phraseology delete as applied to Amerons contract effort on [AWT]. The failure of MWD to allow the completion of the work in the Ameron contract is, pursuant to Article 14(a) of the prime contract, a termination of the contract work.

Having received SBBs letter asserting its remedy under paragraph 18, MWD responded on April 20, 2000 by letters confirming its decision.^[13] The letters provided some further explanation of the basis for MWDs decision, indicating that it was impractical to proceed with the tunneling work as specified in the contract documents. SBBs next step, therefore, was to follow with a notice of potential claim and claim.

On May 4, 2000, Shank wrote MWD, stating, in part, To comply with the contract requirements, however, [SBB] will require additional information from the MWD, including, (1) explaining the contract sections under which the engineer has made and is implementing his decision, (2) explaining the exact contract sections, under which, and how, the MWD proposes to pay [SBB] for the results of the engineers decision, and (3) explaining the basis upon which the MWD has determined that it is not practical to complete the tunneling portion of the work.

On May 5, 2000, Tempelis responded to Shank. Tempelis referred to earlier communications which suspended work pending resolution of issues with the permitting agency. Tempelis added that his recent letters explained that, as discussions with the permitting agency are still ongoing, it is impractical to proceed with all further work related to the unexcavated portion of the project. Tempelis further indicated, Our April 20 letter also advises of [MWD]s intention to compensate the Contractor for the reasonable value of the work performed and other actual costs sustained by the Contractor. This language appears in Section 14(a) of the General Conditions. Finally, Tempelis stated his belief that SBB has had sufficient information to comply with its obligation to file a notice of potential claim within 20 days after receipt of the Engineers confirmation, which had been sent on April 20, 2000.

On May 9, 2000, Shank replied as follows: We acknowledge receipt of your letter of May 5, 2000, informing us that the MWD intended to terminate [the AWT contract] pursuant to General Conditions (GC) Section 14, promising to fairly and reasonably compensate us for the termination. [] Under these circumstances, we believe that GC 18, the protest and claims procedure, is superseded by GC 14, which establishes no timetable for submitting and agreeing upon the compensation for which the MWD is liable. We will submit our proposed compensation to [MWD] when all of our termination costs have been incurred or can be foreseen, and have been identified, assembled, and calculated. After making this submittal, if we cannot agree with the MWD as to fair and reasonable compensation, we reserve our legal and contract rights, including proceeding with GC 18, to obtain such compensation.

On May 22, 2000, Tempelis responded to Shank as follows, Thank you for your letter of May 9, 2000. [] Confirmation of the Engineers decision to delete all further work related to the unexcavated portion of the project was given on April 20, 2000. A Notice of Potential Claim has not been submitted with respect to this decision pursuant to General Conditions Section 18[]. [MWD] does not agree that [SBB] may reserve legal or contract rights to protest this decision, or that General Conditions Section 18 is superseded by Section 14. [] [MWD] recognizes SBBs rights to receive compensation under Section 14(a), and concurs that such costs should be submitted promptly after they are ascertained. The procedures in Section 18 are available in the event of disagreement concerning SBBs claim for compensation under Section 14(a).

Thereafter, SBB and Ameron prepared their claims for compensation from MWD. During this time, SBB and Ameron continued to characterize MWDs April 11, 2000 act as a termination of the contract. Indeed, in a December 12, 2000 letter from Ameron to SBB, Ameron referred to its claim for costs resulting from the initial suspension and subsequent termination of the contract.^[14]

At some point, however, SBB and Ameron concluded that the contract had not been terminated, but that work had instead been deleted. They therefore submitted claims based on paragraph 10 of the contract, rather than paragraph 14. MWD disputed the claims, paying them only in part.

On October 16, 2002, SBB brought two actions against MWD, one alleging breach of the AET contract and the other alleging breach of the AWT contract. Each case asserted the claims of SBBs subcontractors on a pass-through basis.^[15] The cases were consolidated on August 27, 2003. On May 11, 2004, a settlement was reached, resolving all outstanding issues except the pass-through claims of Ameron. On May 13, 2004, MWD made a Code of Civil Procedure section 998 offer of $3 million. On May 24, 2004, MWD filed a cross-complaint against Ameron, asserting Amerons claims constituted violations of the False Claims Act. The case proceeded to a bench trial encompassing several weeks of testimony. While numerous issues relating to specific cost items claimed by Ameron via SBB were before the trial court, only three issues concern us on appeal: (1) SBB argued that the contract had not been terminated, but MWD had instead deleted work from the contract; (2) SBB argued that if the contract had been terminated, the termination constituted a breach because continuing work on the contract was not impossible or impracticable; and (3) SBB argued that the limitation of compensation for overhead incurred during the suspension period to 15% of actual costs was statutorily impermissible, and that Ameron was entitled to recover the actual value of its overhead during the year the contract had been suspended.

The trial court ruled in favor of SBB and Ameron, but only in the amount of $2 million. Ameron was unsuccessful on many of its claims. Specifically, the trial court concluded the contract had been terminated, and that Ameron was not entitled to damages for a deletion of work. The trial court further concluded that SBB was barred from asserting the termination was improper under the contract by its failure to pursue its paragraph 18 challenge to the engineers termination decision. Finally, the court concluded Ameron was not entitled to any damages for overheard incurred during the suspension period beyond the 15% of actual costs allowed by paragraphs 13 and 11(c) of the contract. The court ruled against MWD on its cross-complaint.

Judgment was entered on June 14, 2005; the judgment indicated costs would be determined pursuant to a Memorandum of Costs and/or appropriate motions to be submitted by the parties. On August 1, 2005, SBB filed its notice of appeal from the judgment. During this time, costs motions were pending. On August 16, 2005, MWD filed a notice of cross-appeal, relating to its cross‑complaint. On October 7, 2005, the court issued its order awarding MWD costs of approximately $250,000, including Code of Civil Procedure section 998 costs incurred after the settlement offer.^[16] SBB did not file a notice of appeal from the post‑judgment order awarding costs in favor of MWD.

CONTENTIONS ON APPEAL

On appeal, SBB argues the contract was not terminated and that, instead, work was deleted. We disagree. SBB next argues that any termination of the contract was improper, as it had not been impossible or impracticable to proceed with the contract, entitling it to damages for breach. We conclude SBBs failure to pursue its paragraph 18 remedy with respect to the decision to terminate the contract bars it from challenging that decision. SBB contends the limitation on damages for overhead incurred during a period of suspension violates the Public Contracts code. We conclude the limitation is proper. Finally, SBB challenges the award of costs to MWD. As SBB failed to appeal this post-judgment order, we need not reach it on appeal. MWD pursued a cross-appeal, but only did so in the event we find in favor of SBB on its appeal. As we affirm the judgment in its entirety, we need not reach MWDs cross‑appeal.

DISCUSSION

1. Standard of Review

The trial courts factual determinations are reviewed under the substantial evidence standard and are not disturbed if supported by substantial evidence. [Citation.] Issues concerning the application of statutory authority present questions of law subject to independent review of the trial courts rulings. (Howard Contracting, Inc. v. G. A. MacDonald Construction Co. (1998) 71 Cal.App.4th 38, 49.)

To the extent the issues on appeal involve contract interpretation, the following rules apply. A contract entered into by a governmental body and an individual is governed by the same rules which apply to the construction of contracts between private persons. (Hensler v. City of Los Angeles (1954) 124 Cal.App.2d 71, 78.)  A contract must be interpreted to give effect to the mutual, expressed intention of the parties. Where the parties have reduced their agreement to writing, their mutual intention is to be determined, whenever possible, from the language of the writing alone.  (Fire Ins. Exchange v. Hammond (2000) 83 Cal.App.4th 313, 321.) Parol evidence may be admitted to construe ambiguous contract terms. (Allen v. Smith (2002) 94 Cal.App.4th 1270, 1277.)

2. MWD Terminated the Contract

SBB contends the trial court erred in concluding MWD terminated the contract, entitling it to compensation under paragraph 14(a), rather than concluding MWD deleted work from the contract, entitling it to compensation under paragraph 10(c).^[17] SBB characterizes this issue as one of contract interpretation. That is, SBB argues that we must evaluate the undisputed facts and determine whether they constituted a termination within the meaning of paragraph 14(a). SBB here confounds two related issues whether SBB terminated the contract and whether that termination was contractually permissible. The first is simply an issue of fact, to be reviewed for substantial evidence.

We conclude substantial, if not overwhelming, evidence supports the trial courts conclusion that MWD terminated the contract. MWDs initial letters indicating the deletion of tunneling work were ambiguous, in that they did not indicate whether MWD was terminating the contract under paragraph 14 or deleting work under paragraph 10. SBB and Ameron both challenged the letters, taking issue with any suggestion that the work was deleted and arguing instead that the contract was terminated. When SBB specifically asked MWD to identify the paragraph under which it was acting (and under which MWD planned to compensate SBB), MWD specifically identified paragraph 14(a) the termination paragraph. SBB accepted that representation, stating, We acknowledge receipt of your letter of May 5, 2000, informing us that the MWD intended to terminate [the AWT contract] pursuant to General Conditions (GC) Section 14. In short, MWD, SBB and Ameron each stated, in writing, that MWD terminated the contract under paragraph 14. The trial courts factual determination that the contract was terminated is well-established.

SBB suggests that the April 11, 2000 letters could not have terminated the contracts because they required SBB to perform a small amount of additional work. SBB takes the position that the continued performance of any work is inconsistent with termination, and therefore must constitute a deletion. We disagree. Preliminarily, as both SBB and Ameron expressly stated in writing that the April 11, 2000 letters terminated the contracts, regardless of the remaining work required, we find their complete change in position disingenuous.^[18] In any event, contract terminations frequently are not effective immediately, but request or require additional performance prior to termination. The AET and AWT contracts were $85 million contracts for the construction of two tunnels through the San Bernardino mountains. Shank understood that the letters had the effect of eliminating our tunneling on the job. It was certainly true, and in that sense, our contract was terminated. That a small amount of incidental work remained to be performed does not change the result. Indeed, SBBs argument assumes that MWDs act would have been a termination had MWD, instead of noticing the termination in April 2000, said nothing and allowed SBB to believe that it may be asked to resume tunneling, and only terminated the contract after SBB had completed the incidental, related work. Instead, MWD acted in good faith, informing SBB as soon as it had made the decision that the contract would be terminated, enabling SBB to obtain other work and mitigate its losses. We cannot conclude that the good faith involved in giving a party advance notice of a termination transforms the termination into a deletion of work.

3. SBB Cannot Challenge the Propriety of the Termination

SBB next contends that MWDs termination of the contract was improper, on the basis that it was not justified by impossibility or impracticability.^[19] The trial court concluded SBB was barred from challenging the propriety of the termination by its failure to pursue the dispute resolution provisions of paragraph 18. We agree.

SBB suggests that paragraph 18 does not bar this action because the paragraph, by its terms, applies only to claims for payment for extra work performed under protest, not claims relating to other disputes. SBB is incorrect. While paragraph 18 does apply to claims for work performed under protest, it also applies to all other disputes arising from decisions made by MWDs engineer. We quote the relevant portions of paragraph 18 at length:

18. Protest and Claims Procedure. (a) Protest. If the Contractor considers any work demanded to be outside the requirements of the Contract, or if the Contractor disagrees with any decision of [MWDs] Engineer, the Contractor shall immediately, upon such work being demanded or such decision being made, submit a written protest to the Engineer and request confirmation of such demand or decision. The protest shall contain a brief description of the demand or decision, the name of the person making such demand or decision, and the date on which it was made. Failure to immediately protest and request such confirmation shall constitute a waiver of the Contractors right to receive compensation or time extension for work performed under protest.

(b) Confirmation. The Engineer will consider and investigate the protest and promptly respond in writing to confirm, rescind, or modify the demand or decision disputed by the Contractor.

[Provision requiring Contractor to perform work under protest]

(d) Submittal of claim. (1) In order to preserve its right to pursue a remedy, the Contractor shall submit to the Engineer a notice of potential claim no later than 20 days after receipt of the Engineers written confirmation; if the matter remains unresolved, the Contractor shall file a written claim no later than 25 days after submission of the notice of potential claim or the date the final payment is due under the contract, whichever is earlier.

(2) The notice of potential claim shall set forth the Contractors factual or legal contentions upon which its objections to the Engineers demand or decision are based; contain a description of the impacts to the Contractors operations affected by the decision, and outline the general nature and extent of costs or delays involved.

[Provisions related to the content of the claim]

(5) Orders or decisions of the Engineer that are protested by the Contractor shall be final and conclusive on the Contractor if the Contractor fails to submit a notice of potential claim and a claim in the manners and within the times stated above, and such failure shall constitute a waiver of the right to receive additional compensation or time extension for work performed under protest. (Emphasis added.)

Additionally, the contract included Supplemental General Conditions, including paragraph 66, which established a Disputes Review Board. The paragraph states, The inclusion of the Disputes Review Board is a concurrent method of resolving disputes and claims. In order for the Contractor to maintain a legal right to a protest and claim the Contractor is required to follow the requirements of Section 18 of the General Conditions. (Emphasis added.)

The language of these sections is clear. If the Contractor disagrees with a decision of MWDs engineer, the contractor shall file a written protest. After the engineer has confirmed the decision, the Contractor shall file a notice of potential claim and notice of claim. Decisions that have been protested are final and conclusive on the Contractor if the Contractor does not file a notice of potential claim and claim. Without doing so, the Contractor loses its legal right to protest.

In this case, the engineer made a decision to terminate the contract. SBB filed a written protest of that decision, and the engineer confirmed it in writing. SBBs next step was to file a notice of potential claim. Aware of this requirement, SBB asked MWD to clarify the precise section under which MWD intended to pay it compensation. MWD responded that SBB would be compensated under paragraph 14(a). MWD further reminded SBB that the deadline for a timely notice of potential claim was fast approaching. Instead of submitting a notice of potential claim, SBB acknowledged receipt of the letter and indicated that it would submit a claim for compensation under paragraph 14(a). SBB reserved its rights under paragraph 18 if we cannot agree with the MWD as to fair and reasonable compensation. Putting it simply, SBB protested MWDs decision to the extent that it was not a termination. When MWD confirmed that it was a termination, SBB did not seek to pursue its remedy under paragraph 18 to challenge the termination, preferring to accept the termination, seek the contractually-provided compensation for a termination, and preserve only its right to challenge the compensation subsequently paid. Having initially protested the engineers decision to terminate the contract, SBBs failure to continue the paragraph 18 dispute resolution procedure with respect to that decision bars SBB from challenging the propriety of that decision in court.

As the language of paragraph 18 bars SBBs assertion of error, SBB next argues that paragraph 18 is legally inapplicable as a forfeiture clause. We disagree. First, the clause is not merely a notice clause,^[20] but one which requires an attempt at extrajudicial resolution of disputes. Contract provisions for the extrajudicial settlement of disputes are binding on the parties whether the arrangement is technically a common-law or statutory arbitration or something akin. [Citations.] Mandatory contractual remedies must be exhausted before resort to the courts. (A. Teichert & Son, Inc. v. State of Cal. (1965) 238 Cal.App.2d 736, 746.)

Relying on Boomer v. Abbett (1953) 121 Cal.App.2d 449 and D. A. Parrish & Sons v. County Sanitation Dist. (1959) 174 Cal.App.2d 406, SBB argues that such disputes clauses do not apply to disputes over whether there has been a breach of contract. The cases are distinguishable. In Boomer, the case involved the interpretation of a contract with the federal government. The contract included a disputes clause providing, all disputes concerning questions of fact arising under this contract shall be decided by the contracting officer subject to written appeal by the contractor within 30 days to the head of the department . . ., whose decision shall be final and conclusive upon the parties thereto. (Boomer v. Abbett, supra, 121 Cal.App.2d at p. 454, emphasis added.) The Boomer court relied on decisions from the Court of Claims interpreting this very clause to conclude that actions that amount to an actual breach of the contract are not covered by the disputes article. (Id. at p. 462.) It is sufficient to say that we are interpreting a different contract provision one which is not limited to disputes concerning questions of fact, but which specifically encompasses all decisions made by MWDs engineer. Moreover, the disputes clause at issue does not empower the government agency to resolve disputes, but rather provides for informal conference and ultimate resort to arbitration or the courts.

D. A. Parrish & Sons v. County Sanitation Dist., supra, 174 Cal.App.2d 406 is similarly unavailing. That case involved a clause indicating that, if the contractor sought compensation for additional work, the contractor was required to give notice of the claim within ten days. Failure to give notice was considered a waiver. (Id. at p. 413.) The contractor in that case sought compensation for the increased costs of work incurred due to the Countys failure to obtain the necessary rights of way for it to do its work. The D. A. Parrish court stated that the notice clause did not apply because it refers to additional or extra work, not to damages incurred by [the County]s frustration of [the contractor]s ability to perform the prescribed work. (Ibid.) In addition to this holding, the D. A. Parrish court concluded that the clause was a forfeiture clause which will not only be strictly construed [citation] but has been interpreted by this court not to apply to claims arising from breaches of the contract caused by the other party. For this latter proposition, the D. A. Parrish court relied on McGuire & Hester v. City etc. of S. F. (1952) 113 Cal.App.2d 186. McGuire & Hester, like D. A. Parrish, involved the factual scenario of a government entity that failed to timely obtain necessary rights of way, and a contractors claim for damages arising from that failure. The contract defined unavoidable delays as those beyond the control of the contractor and avoidable delays as those the contractor might have avoided. The contract contained a provision that there was no remedy for avoidable delays, and the only remedy for unavoidable delays was an extension of time in which to perform the work. (Id. at pp. 188‑189.) The McGuire & Hester court looked to the contractual definition of unavoidable delays, which included delays related to orders of the government entity changing the amount of work to be done and delays due to other contractors. The court concluded that the language in no way suggested that it also included delays arising from the governments breach of its express obligation to obtain necessary rights of way prior to the start of construction. (Ibid.) The McGuire & Hester court simply concluded that, construing the contractual language before it to encompass delays caused by the governments own breach would be to give the clause and the contract as a whole a strained, unreasonable and unfair interpretation. (Id. at p. 189.) The McGuire & Hester opinion was limited to the specific language of the clause before it, and noted that similar clauses written to extend to the governments own neglect were upheld. (Id. at p. 191.) In short, the McGuire & Hester opinion was simply an interpretation of the specific language of the contract before it. To the extent the D. A. Parrish opinion can be read to infer from McGuire & Hester a general proposition of law that notice provisions or dispute resolution clauses cannot apply to claims arising from breaches of contract, we find no basis for the conclusion.

In short, there is no legal bar to the application of paragraph 18 to the facts of this case. SBBs failure to pursue its challenge to MWDs engineers decision to terminate the contract bars SBB from now challenging that decision.

4. SBBs Claim for Amerons Overhead Arising from the
Suspension was Properly Limited

As discussed above, paragraph 13 provides MWD with authority to suspend work on the contract. When the suspension is for the convenience and benefit of MWD, SBB is entitled not only to an extension of the time for performance, but also to payment for the delay. Specifically, paragraph 13(c) provides that SBB is to be paid for [t]hose actual necessary costs of idle time of construction equipment, idle time of workers, moving of construction equipment, and hauling of materials and equipment which are incurred solely by reason of the delay and which could not have been avoided by the judicious handling for forces, construction equipment and plant, with allowance for overhead and profit as provided in Paragraph 11(c). Paragraph 11(c) sets an allowance for overhead and profit at 15% of actual expenses.^[21]

SBB argues that application of this limited allowance for overhead and profit renders paragraph 13 violative of Public Contracts Code section 7102. That section provides, in its entirety, as follows: Contract provisions in construction contracts of public agencies and subcontracts thereunder which limit the contractees liability to an extension of time for delay for which the contractee is responsible and which delay is unreasonable under the circumstances involved, and not within the contemplation of the parties, shall not be construed to preclude the recovery of damages by the contractor or subcontractor. [] No public agency may require the waiver, alteration, or limitation of the applicability of this section. Any such waiver, alteration, or limitation is void. This section shall not be construed to void any provision in a construction contract which requires notice of delays, provides for arbitration or other procedure for settlement, or provides for liquidated damages.

Clearly, by its terms, Public Contracts Code section 7102 is no bar to the enforcement of paragraph 13(c). Public Contracts Code section 7102 applies to contract clauses that prohibit damages for government-caused delays. Paragraph 13(c), to the contrary, provides for damages for delays caused by MWD. SBB argues, however, that the allowance for 15% overhead and profit damages is a limitation on the right to recover damages that violates Public Contracts Code section 7102. We disagree. Public Contracts Code section 7102 does not provide that a contractor is entitled to its actual damages caused by a delay. Instead, Public Contracts Code section 7102 simply voids provisions which purport to limit the public agencys liability for its own unreasonable and unanticipated delays to extensions of time.

The legislative history of Public Contracts Code section 7102 confirms this result.^[22] Public Contracts Code section 7102 was originally enacted in 1984. At that time, the statute provided, in its entirety, as follows: Contract provisions in construction contracts of public agencies and subcontracts thereunder which limit the contractees liability to an extension of time for delay for which the contractee is responsible and which delay is unreasonable under the circumstances involved, and not within the contemplation of the parties, shall not be construed to preclude the recovery of damages by the contractor or subcontractor. [] This section shall not be construed to void any provision in a construction contract which requires notice of delays, provides for arbitration or other procedure for settlement, or provides for liquidated damages. (Stats. 1984, ch. 42, 2.)

The debate regarding the enactment of this statute concerned the determination of which delays would entitle the contractor to compensation, rather than simply an extension of time. As originally introduced, the bill would have voided any provision limiting liability solely to an extension of time for all delays which . . . are the responsibility of the public entity. (Assem. Bill No. 1837 (1983-1984 Reg. Sess.)  2.) Several governmental entities opposed the legislation on the bases that: (1) public entities should not be required to pay damages for anticipated delays in the construction process (e.g., Department of General Services, Bill Analysis of Assem. Bill 1837 (1983‑1984 Reg. Sess.), p. 1); and (2) voiding limitations of liability for delays would encourage disruptive on-the-job conflicts (e.g., Department of Water Resources, Bill Analysis of Assem. Bill 1837 (1983-1984 Reg. Sess.), p. 2). The bill was therefore modified to apply only in cases of delays caused by the contracting public entity when the delay was unreasonable and not anticipated by the parties. (Sen. Com. on Judiciary, Analysis of Assem. Bill No. 1837 (1983-1984 Reg. Sess.) as amended January 13, 1984.)

At the same time, the bill was amended to add the paragraph indicating the statute would not void any provision in a construction contract which requires notice of delays, provides for arbitration, or provides for liquidated damages. The legislative history is silent on the reason for this addition. We note, however, that prior to the amendment, a representative of interests in the construction industry wrote the bills author and referred him to similar legislation that had recently been enacted in the State of Washington. (Warren R. Mendel, letter to Assemblymember Elihu Harris, Sept. 13, 1983.) The Washington statute included this language. (Wash. Rev. Code  4.24.360.)

In short, Public Contracts Code section 7102 as originally enacted was intended to void no damages for delay clauses when the delay was unreasonable and unanticipated. It was further intended not to invalidate provisions requiring notice, providing for arbitration, or providing for liquidated damages. It is apparent that paragraph 13 does not run afoul of the originally enacted statute. Paragraph 13 does not, in any way, limit the contractees liability [for such a delay] to an extension of time. It specifically provides for the recovery of damages in those circumstances, and sets forth a means for calculating those damages. There is nothing in Public Contracts Code section 7102, as originally enacted, which prohibits the parties to a public contract from agreeing in advance to a means of calculating damages. Indeed, the statutes specific language indicating that it does not void provisions providing for liquidated damages strongly argues to the contrary.

We next consider whether the single subsequent amendment to Public Contracts Code section 7102 renders paragraph 13 invalid. In 1987, it came to the attention of the Legislature that some public agencies were forcing their contractors to waive the applicability of Public Contracts Code section 7102. (Warren R. Mendel, letter to Assemblymember Delaine Eastin, April 13, 1987.) The Legislature addressed this problem by enacting Statutes 1987, chapter 98, section 1. This section added to Public Contracts Code section 7102 the following language: No public agency may require the waiver, alteration, or limitation of the applicability of this section. Any such wavier, alteration, or limitation is void. The remaining language of Public Contracts Code section 7102 remained unchanged.

SBB takes the position that paragraph 13s provision setting recovery for overhead and profit at 15 percent is a limitation on its right to collect damages and thus constitutes an improper limitation of the applicability of Public Contracts Code section 7102. This is incorrect. The 1987 amendment to Public Contracts Code section 7102 was intended to void attempts by public entities to waive, alter, or limit the applicability of that section that is to say, it voided attempts by public entities to reactivate no damages for delay clauses. It was not intended to void contractual terms which provided for damages and set forth a means for calculating such damages. It therefore does not invalidate paragraph 18.

5. SBBs Failure to Appeal the Award of Costs Waives the Issue

The trial courts judgment indicated that costs would be determined pursuant to a Memorandum of Costs and/or appropriate motions to be submitted by the parties. SBB filed a timely notice of appeal from the judgment. Subsequently, the court issued its post-judgment order awarding costs, including Code of Civil Procedure section 998 costs. SBB did not separately appeal from this post-judgment order.

A postjudgment order which awards or denies costs or attorneys fees is separately appealable. (Norman I. Krug Real Estate Investments, Inc. v. Prasker (1990) 220 Cal.App.3d 35, 46.) [I]f no appeal is taken from such an order, the appellate court has no jurisdiction to review it. (Ibid.) This is specifically true for an award of costs under Code of Civil Procedure section 998. (Fish v. Guevara (1993) 12 Cal.App.4th 142, 147-148.)

It is true that when a judgment awards costs and fees to a prevailing party and provides for the later determination of the amounts, the notice of appeal [from the judgment] subsumes any later order setting the amounts of the award. (Grant v. List & Lathrop (1992) 2 Cal.App.4th 993, 998.) That rule, however, has no application to this case, where the judgment did not award costs and fees, but simply stated that issues of costs would later be determined. SBBs failure to separately appeal the post-judgment order awarding costs deprives us of jurisdiction to review it.

DISPOSITION

The judgment is affirmed. As such, the conditional cross-appeal is considered abandoned and is dismissed as moot. MWD shall recover its costs on appeal. Ameron shall recover its costs on the cross-appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

CROSKEY, J.

We Concur:

KLEIN, P. J.

KITCHING, J.

Publication courtesy of California free legal advice.

Analysis and review provided by Carlsbad Property line attorney.

^[1] MWD had provided copies of the tunnel plans to the San Manuel Tribe during the planning stages of the project.

^[2] Mitigation measures were geared toward the replacement of lost groundwater. Thus, for example, if the flow in springs or streams dropped, MWD was to provide surface or drip irrigation to maintain vegetation. If necessary, MWD was also to provide guzzlers to supply temporary drinking water for animals.

^[3] In its brief on appeal, SBB states that, in order to supply the necessary pipe, Ameron was required to invest large sums of money to construct and fabricate a plant capable of producing the pipe. This is an overstatement. Ameron modified an existing line at one of its existing plants.

^[4] Shank was unable to testify at trial; portions of his deposition were introduced into evidence.

^[5] The parties variously refer to these provisions as paragraphs, sections, articles or general conditions. The terminology is irrelevant.

^[6] There were two contracts between MWD and SBB, one for each tunnel. For our purposes, the General Conditions of the contracts were the same. We therefore simplify by referring to the two contracts as a unified whole, except where necessary.

^[7] Paragraph 11(c) provides for overhead and profit at a rate of 15% of actual costs of materials and equipment, and 20% of actual costs of labor. Only the 15% rate is at issue in this case.

^[8] A bolted, gasketed approach was substantially different from the means of tunnel construction used by SBB. It would require a new tunnel boring machine, one which cost $8.5 million in contrast to SBBs $3.1 million machine. The new tunnel boring machine would have a greater ability to grout ahead of its path. The segments installed behind the tunnel boring machine would also be different. Rather than the free-draining segments used by SBB, different, watertight tunnel segments would be installed, joined together with bolts and gaskets. While the reinforced concrete cylindrical pipe supplied by Ameron would be the same under both approaches, SBBs task of drilling the tunnel and preparing it for the installation of Amerons pipe would be substantially different.