November 7, 2011
The City of Carlsbad entered into a written contract with P&D Consultants, Inc., who was to provide civil engineering and other services to redesign the City's municipal golf course. The contract stated all amendments, modifications, or waivers, etc., must be in writing and signed by both parties. There was also an integration clause in the contract stating the contract and any written amendments would represent the parties' entire agreement.
During the course of construction there were five separate amendments that arose, each increasing the price of the contract. In the first four amendments, the City project manager would authorize P&D to begin the extra work before the signed amendments were received. Amendments Nos. 1 through 5 all included language stating "All other provisions of the Agreement, as may have been amended from time to time, will remain in full force and effect." In addition, Amendment 5 stated "It is the intent of the Parties that Amendment No. 5 shall provide all final and complete services by Contractor to City required to produce the final, approved, signed and complete sets of plans, specifications, and estimates required by the City to bid the Project."
Amendment 5 goes on to state the City will pay P&D on a time and material basis not-to-exceed $99,810 and that no additional compensation will be requested by Contractor or approved by the City related to the scope of work.
During the negotiations for amendment 5, P&D sought an amount above what was eventually agreed on, which included almost $70,000 for work already performed. Again, the project manager for the City authorized P&D to begin the extra work several weeks before the amendment was actually executed.
P&D sued the City for breach of written contract, breach of implied contract, quantum meruit and violation of prompt payment statutes. The City filed a cross-complaint, alleging breach of contract for deficient and incomplete work. P&D argued the amendments were modified by the City's project manager's oral authorization for the extra work and the history of P&D starting the work after oral authorization from the City. The trial court ruled a public contract may be modified by the parties' conduct and therefore awarded P&D the money it was asking for. The City was also awarded a relatively small amount of money for its breach of contract cross-action.
The City appealed the ruling in favor of P&D. The Court of Appeal overturned the trial court's ruling. The Court of Appeal stated that since this was a public works contract and the language of the contracts was plain and simple, the contract cannot be modified by oral authorization. It went on to state that a government entity is not bound by an officer who acts in excess of his authority as was the case here. The Court of Appeal stated that private and public contracts are different and that public contracts which require written modifications cannot be modified orally or through the parties actions and that public works contracts do not have the freedom of modifications that private works contracts have.