Remember BAE Systems and Fluor? This post is the third here at Construction Law Musings relating to this case which is a seemingly never-ending source for content. In the prior post discussing this case, the Court found that Va. Code 1-4.1:1 which bars waiver of a right to payment before work is performed did not apply because Fluor had provided work before execution of the contract or any change orders.
In the most recent opinion in this long-running litigation, and after a motion to reconsider by Fluor that was granted, the Court re-examined this finding along with the contractual language found in the Limitation of Damages (LOD) clause and came to the opposite conclusion regarding certain change orders that remained unpaid by BAE.
The Court first looked to the language of the contract itself and specifically the language in the LOD provision that states “Except as otherwise provided in this Subcontract.” The Court then looked at the change order provision and its typical equitable adjustment language and the mandatory nature of the equitable adjustment language. The Court found that the LOD provisions did not apply to change orders both because price increases due to change orders are not “damages” and because of the exception language in the LOD provision itself.
The Court then went on to analyze the claim by Fluor through the lens of Va. Code 11-4.1:1. The Court found, contrary to its prior holding, that the design and other work performed pre-contract under a separate undefined contract agreement (UCA) was not work performed under the Subcontract prior to its execution. In short, it held that work under the UCA, including ordering materials and design work, did not constitute work under the subsequent Subcontract. While funding for some of the work was provided under the UCA, the Subcontract specifically authorized Fluor to “initiate performance of the work.” After making this finding, the Court held that the LOD provision was illegal under Virginia law and unenforceable.
I highly recommend the opinion for your reading. Remember that these opinions are very fact and contract language specific so don’t take action relating to your contractual claim without consulting an experienced Virginia construction attorney.
Do you agree with the analysis? I’d love to hear any thoughts.
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