​​Pennsylvania Superior Court Clarifies Contractors’ Entitlement to Recovery of CASPA Damages Based on Partial Performance of Construction Contracts​

In a recent decision, Tedesco Excavating & Paving, Inc. v. FWH Development, LLC, the Pennsylvania Superior Court ruled that a contractor who performs some, but not all, of its contractual obligations may still be entitled to recover damages under Pennsylvania’s Contractor and Subcontractor Payment Act (“CASPA”) including overhead, lost profits, interest, costs, and attorneys’ fees. 

In this case, the owner hired a contractor to perform certain roadwork in connection with a residential and commercial development. The contract provided that the owner could terminate the contract without cause upon seven days’ written. The contract also provided that, if the owner terminated the contract without cause, the contractor was entitled to payment “for completed and acceptable work executed in accordance with the contract…including fair and reasonable sums for overhead and profit on such work.” The contract did not permit the contractor to recover “anticipated profits or revenues or other economic loss arising out of or resulting from such termination.”   

Following execution of the contract, the contractor promptly executed a subcontract with an electrical subcontractor, procured and stored traffic light poles, prepared and submitted detailed engineering shop drawings for the traffic light poles, and secured insurance in connection with the project. The contractor and its electrical subcontractor also attended a mandatory pre-construction meeting with PennDOT and the owner. At the pre-construction meeting, the owner informed the contractor that the owner lacked adequate funding for the project. However, the owner did not suspend the project.   

Despite the contractor and the owner remaining in communication, the project did not commence for several years. At the owner’s request, the contractor provided two escalation proposals for cost increases. The contractor became aware, and the owner confirmed, that the owner awarded the contract for the remaining roadwork to one of the contractor’s competitors. The owner believed that the contractor’s escalation proposals were excessive and stated that the owner would “no longer use [the contractor] to complete the work for the project.” 

The contractor sued the owner for breach of contract, seeking both overhead and profit. The contractor also submitted a pay application for “final payment,” which included overhead and profit. The owner did not respond to the pay application but subsequently provided written notice of termination without cause. 

At trial, the jury awarded overhead and lost profits to the contractor, and the trial court added interest, attorneys’ fees, and legal costs to the verdict. The owner appealed, asking the Superior Court to decide whether a contractor that has been paid for all work performed under the contract is entitled to recover overhead, profit, interest and attorneys’ fees under CASPA. 

On appeal, the Superior Court discussed how CASPA “is a comprehensive statute enacted…to cure abuses within the building industry involving payments due from owners to contractors, contractors to subcontractors, and subcontractors to other subcontractors,” with CASPA’s purpose being “to protect contractors and subcontractors and to encourage fair dealing among parties to a construction contract.” The Court noted that the Pennsylvania legislature did not include requirements within CASPA that a contractor or subcontractor perform physical work or complete a construction project to be entitled to payment. Rather, the Court determined that the Pennsylvania legislature provided that “performance by a contractor or a subcontractor in accordance with the provisions of a contract shall entitle them to payment” and that performance most likely meant “accomplishment of some but not all of one’s contractual obligations.” 

The Court found that the contractor accomplished some, but not all, of its contractual obligations by (1) meeting and contracting with subcontractors, (2) submitting documents and shop drawings, (3) buying insurance, (4) meeting with PennDOT, and (5) keeping a gap open in its schedule for the project. The Court further stated that, regardless of whether the term “performance” within CASPA requires full performance under a contract, the owner’s anticipatory repudiation of the contract terminated the contractor’s contractual obligations. The Court found that, when the owner materially breached the contract by hiring the contractor’s competitor to do the work, whatever work the contractor had previously performed under the contract instantly became “full performance” because the contractor had no further contractual obligations to the owner. 

Relatedly, the Court observed that it would be unfair to allow an owner to bar a contractor from seeking interest and attorneys’ fees on expected profits by preventing the contractor from completing the very final portion of the contractor’s work on the project. Otherwise, the Court opined, there would be nothing to “discourage unscrupulous owners…from anticipatorily repudiating construction contracts and subsequently litigating the contractor…to death.” 

The Court found that the contractor’s recovery of ordinary interest, penalty interest, and attorneys’ fees under CASPA were “particularly appropriate” to offset the losses that the owner caused the contractor from both the project and other potential projects that the contractor could not schedule while it waited on the owner to greenlight the project. Ultimately, the Court ruled that CASPA applied to the situation at issue because (1) the owner anticipatorily repudiated the contract, (2) the contractor demanded final payment for its lost overhead and profits, and (3) the owner refused to pay the sum demanded. Accordingly, the Court found that the contractor was entitled to recover damages pursuant to CASPA, including overhead, lost profits, interest, costs, and attorneys’ fees. 

If you have any questions regarding recoverable damages as part of a construction dispute, either as an owner, contractor, or subcontractor, or any other questions regarding a construction dispute, consult your attorney or anyone in Clark Hill’s Construction Practice Group.