I once had a teacher who called the word “please” a magic word. For instance, if you asked to go to the restroom, the response was usually, “what’s the magic word?” Then you said “please” and got to go the restroom.
This exchange repeated itself numerous times a day as students made various requests. The word “please” usually worked. Of course, there were other times when even if you used the word “please,” your request was still denied, which sort of muddied the water as to what was so magic about it to start with.
As it turns out, in construction law, there are also some magic words. In fact, the recent case of Nu-Build & Associates, Inc. v. Sooners Group, L.P. illustrates this point because in that case, failing to use the magic word “reasonable” caused $3.6 million in damages to disappear.
You read that correctly. One minute there was an award of $3.6 million in damages, and the next minute – “poof” – the damages were gone.
Here’s what happened. Nu-Build was the general contractor for a project owned by Sooners Group. Sooners Group terminated Nu-Build before the project was complete and hired a replacement contractor. As often happens, a lawsuit followed.
Following a bench trial, the Court awarded Sooners Group $3.6 million in damages for its costs to complete the project after Sooners Group terminated Nu-Build. On appeal, however, the Court of Appeals reversed the $3.6 million damages awarded to Sooners Group, and the court’s opinion is instructive to construction lawyers.
Here are two important statements from the Court of Appeals that construction lawyers should remember related to recovering damages for the cost of completing a project:
- One, when seeking damages for completion costs, whether based on a contract or a tort, you must establish that the completion costs are reasonable.
- Two, proof of the amounts charged and paid are not evidence that the amount is reasonable.
The Court of Appeals determined that Sooners Group had not adduced any evidence at trial that the completion costs were reasonable, therefore, the entire amount was reversed.
Point number 2 seems illogical to owners and contractors who have had to complete a terminated party’s work. From their perspective, the amounts charged and paid to complete a project or scope of work are inherently reasonable or else they wouldn’t have paid them. Why would someone intentionally pay unreasonable costs to complete a project?
Despite the appeal of that logic, the law takes a different view. There has to be evidence that the completion costs were reasonable to support an award of damages.
So what does this mean for construction lawyers? One thing it means is that careful thought should be given to selecting experts and contractors that can establish that completion costs are reasonable.
And as simple as it sounds, it means making sure your experts literally say the magic word “reasonable” several times. There’s no way to know for sure, but if one of Sooners Group’s experts had testified that Sooners Group’s $3.6 million in completion costs were reasonable, those damages costs may not have disappeared.