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Court Grapples with Cost-Plus Contract and Damages Calculation




By Patricia Porter Kryder


The buyer’s loan from a financial institution was based on the total estimated construction cost plus a 15% builder’s fee. As the contractor completed certain portions of the work on the project, he requested payment from the buyer’s lender. The lender would inspect the completed work and release a portion of the authorized funds commensurate with the work completed.

When the project was near completion, and only one remaining payment was due, the contractor advised the buyer that the project was over budget. The excess was a result primarily from the buyer’s selection of materials and from delays early in the construction project. Although the duplex passed the lender’s final inspection, the buyer refused to release the final payment of the estimated sale price to the contractor.

The buyer maintained that the duplex was not completed, and there was work to be completed. The contractor maintained that a list of “punch-out items” remained, but that it would not complete them without payment for the larger amounts due under the final payment.

The jury found the buyer breached the contract, and two issues of damages were submitted to the jury. One issue was loss of contractual profit to the contractor for the estimated price, and the other was the loss of profit plus expenses for the amount that the project was over budget. The jury awarded the contractual profit for the estimated price but did not award the 15% fee for the overages. The buyer maintained that there was no evidence in the record relating to the cost of completion of the remaining work. The trial court overturned the jury award and awarded the contractor damages.

On appeal
The Court of Appeals of Texas considered the issue based upon the terms of the written contract. There was no dispute that the parties agreed that the price of the duplex would be based on cost plus a 15% “Builder’s Consulting Fee.” The court noted that in this type of contract the contractor is reimbursed for the cost of materials and labor by the owner and receives a percentage of such cost as his profit.

In analyzing the record, the court ruled that the contractor offered some evidence of damages, although the evidence did not support the full amount of the jury awards. Therefore, the case was remanded for a new trial. The court reasoned that the instructions to the jury and its award were inconsistent. While the jury concluded that the buyer agreed to pay the contractor a specified amount, the jury should have computed an offsetting amount of money that the contractor saved in expenses and fees by leaving the project unfinished.


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