The Hidden Risk in Design-Build Project Negotiations: Copyrights

Anthony Chwastyk | Cohen Seglias Pallas Greenhall & Furman

Of the countless issues contractors face on a construction project, immediate problems like scheduling, workforce, payment, and materials supply often overshadow intellectual property concerns. But, they shouldn’t—especially for the design-build contractor. Given the resources the construction design process takes up, these builders need to protect investments from potential losses to the designer of record or the customer. Fortunately, copyright law provides mechanisms to address both of these risks.

The Designer Problem

A typical design-build project can create a unique risk for an architect or engineer seeking damages because of unauthorized use of drawings. U.S. copyright law gives ownership of a work to the author, including ownership of designs to the engineer or architect who prepared them. For a designer preparing plans as an employee of a design-build contractor, the designs would belong to the contractor. Sometimes, however, whether a designer qualifies as an employee is not always clear. Designers working as independent contractors, for example, would retain ownership rights to their designs unless the designer and design-build contractor agree otherwise. Regardless of the engagement, contractors would be prudent to secure such agreements

To prevent disputes about design ownership, contractors should require any professional providing architectural or engineering drawings to assign all their rights to the contractor. This critical measure removes any question of who owns the underlying work. For in-house designers, the employment agreement should have this provision. For outsourced work, the designer’s contract should have a similar provision, although some designers may resist, as standard design contract forms (such as those published by the AIA and EJCDC) often allocate intellectual property ownership to the design professional. By securing ownership for designs prepared, the design-build contractor ensures it can sell such drawings to clients and reduce the risk of ownership claims from designers.

The Customer Problem

Typically, the design-build project delivery method involves a contractor working with a customer through the design process, which often begins before the customer hires the contractor.

Savvy consumers like to perform due diligence before committing to a builder for their projects. Naturally, this pre-hiring vetting process will require the builder to share all kinds of drawings, plans and designs. In doing so, a contractor runs the risk that an owner will take those designs and hire another contractor to complete the project using those plans. Underhanded as that may seem, it has happened on more than one occasion to design-build contractors.

Thankfully, copyright law affords protection to design-build contractors in these situations. Copyright protection attaches the moment the author creates the design, so the “underhanded owner” has no right to use those designs without the contractor’s permission. To safeguard this interest, design-builders can officially register designs with the U.S. Copyright Office. This simple and affordable process involves only an application, a nonrefundable fee, and a submission of a copy of the work to the Library of Congress. Doing so satisfies a requirement for bringing a copyright infringement lawsuit in which the design-builder can seek statutory damages and attorneys’ fees.

Design-build contractors can further protect their designs used to pitch a client by attaching to them the “©” symbol, the word “Copyright,” or the abbreviation “Copr.” along with the year of publication and the owner’s name. This annotation puts others, including customers receiving these designs, on notice of the designs’ ownership and copyright protection.

Finally, design-builders can ask prospective customers, as a condition of showing any prospective designs, to sign a non-disclosure agreement to govern the negotiation process. Such an agreement should, at a minimum, require the customer to acknowledge that all designs and plans the builder prepares in the negotiation process belong solely to the builder and that the customer is not receiving any rights to those designs or associated copyrights. Further, the agreement should prohibit disclosing the designs to anyone other than the builder or other approved persons. The agreement should require that if the customer decides not to hire the builder, then the customer must immediately return all drawings to the contractor. If drafted properly, such an agreement provides more secure and clear ownership rights than a copyright registration but risks disrupting the trust relationship with the prospective client.

Successfully navigating copyright issues for design-build work depends greatly on properly prepared designer contracts and non-disclosure agreements. The stakes in play for such agreements demand design-builders work with knowledgeable legal counsel to get the terms right. The lawyers at Cohen Seglias have experience in preparing such contracts and counseling on copyright issues in the design-build context.

Design Immunity Does Not Shield Public Entity From Claim That it Failed to Warn of a Dangerous Condition

Garret Murai | California Construction Law Blog

Readers of this blog are familiar with the concept of the design immunity defense.

Codified at Government Code section 830.6, it provides in pertinent that a public entity is not liable for an injury caused by a plan or design of a public improvement where the plan or design has been “approved in advance . . . by the legislative body of the public entity or by some other body or employee exercising discretionary authority to give such approval or where such plan or design is prepared in conformity with standards previously so approved” if the trial or appellate court finds that there “is any substantial evidence upon the basis of which (a) a reasonable public employee could have adopted the plan or design or the standards therefor or (b) a reasonable legislative body or other body or employee could have approved the plan or design or the standards therefor.”

In the next case, Tansavatdi v. City of Rancho Palos Verdes, Case No. B293670 (January 29, 2021), the 2nd District Court of Appeal examined whether the design immunity defense also serves as a defense to a claim that a public entity has a duty to warn of a dangerous condition on public property.

The Tansavatdi Case

In March 2016, Betty Tansavatdi’s son was killed by a semi-trailer while waiting at a stoplight on his bicycle at the corner of Hawthorne Boulevard and Dupre Drive in Rancho Palos Verdes, California. Tansavatdi’s son had intended to go straight through the intersection on Hawthorne Boulevard while the semi-trailer had intended to turn right onto Vallon Drive.

The stretch of Hawthorne Boulevard leading to Dupre Drive did not have a bicycle lane although other stretches of Hawthorne Boulevard had bicycle lanes.

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In March 2017, Tansavatdi’s mother filed suit against the City of Rancho Palo Verdes alleging a single cause of action for dangerous conditions on public property. Tansavatdi alleged that the City had created a dangerous condition and failed to warn of a dangerous condition.

The City later filed a motion for summary judgment arguing that it was shielded from liability under the design immunity defense of Government Code section 830.6. The City also claimed that the design immunity defense shielded it from liability from Tansavatdi’s claim that the City failed to warn her son of a dangerous condition through the placement of signs or other warnings.

In support of its motion, the City submitted the declaration of Nicole Jules the former Deputy Director of Public Works and Supervising Civil Engineer for the City. Jules had testified that there had never been a bicycle lane at the stretch of Hawthorne Boulevard leading to Dupre Drive, although other sections of Hawthorne Boulevard had bicycle lanes, because the City wanted to retain on-street parking for the benefit of an adjacent park. In her declaration, Jules stated that the stretch of Hawthorne Boulevard leading to Dupre Drive met or exceeded all applicable government standards and was reasonably approved.

The City also submitted the declaration of Rock Miller a traffic engineering expert. Miller stated that plans for the stretch of Hawthorne Boulevard leading to Dupre Drive were reasonable and in full compliance with applicable guidelines. He also stated that available collision data at the intersection showed that the accident was the only serious accident from 2006 to 2017 and had an “extremely good” collision record.

In opposition, Tansavatdi submitted the declaration of Edward Ruzak a traffic engineering expert who stated that the intersection constituted a dangerous condition due to the absence of a bicycle lane that would direct riders to the left of the right-turn lane. He also stated that Hawthorne Boulevard was heavily used by bicyclists, that the risk of serious collisions was significant, including a steep downgrade in the stretch where the accident occurred, and he faulted the City for failing to provide “warnings or positive guidance regarding the proper and safe use of [the road]” in the absence of a bicycle lane.

The trial court granted the City’s motion for summary judgment concluding that the City had shown entitlement to design immunity as a matter of law. The trial court did not address Transavatdi’s claim that, irrespective of whether the City established design immunity, the City was liable for failing to warn of a dangerous condition. 

Transavatdi appealed.

The Appeal

On appeal, the 2nd District Court of Appeal explained that while a public entity may be liable for injuries caused by a dangerous condition on its property, Government Code section 830.6 provides that a public entity may avoid liability by raising the defense of design immunity, which requires the public entity to show: (1) a causal relationship between a plan or design and the accident; (2) discretionary approval of the plan or design prior to construction; and (3) substantial evidence supporting the reasonableness of the plan or design.

The Court of Appeal further explained that the first two elements – causation and discretionary approval – involve factual questions to be resolved by a jury unless the facts are undisputed. However, the third element explained the Court – the existence of substantial evidence supporting the reasonableness of the plan or design – is a legal matter for the court to decide.

The Court of Appeal found that the City had carried its burden as to each of the three elements. As to causation, the Court held that the plans for Hawthorne Boulevard, while it included markings for “BIKE LANE & ARROW” along portions of Hawthorne Boulevard, it included no such markings for the area where the accident occurred, and that Transavatdi had failed to show that the lack of such markings where the accident occurred was an inadvertent omission.

As to discretionary approval, the Court of Appeals held that the City had carried its burden. A private engineering firm had prepared the plans and submitted them for approval to the City and the City did in fact approve the plans submitted.

Finally, as to substantial evidence supporting the reasonableness of the plan or design, the Court of Appeal explained that “[g]enerally, a civil engineer’s opinion regarding reasonableness is substantial evidence to satisfy this element,” and that here, Jules and Miller, both traffic engineers, opined that the plans were reasonable and in full compliance with applicable guidelines.

However, the Court of Appeal held that it was error for the Court not to consider Transavatdi’s argument that, irrespective of whether the City established design immunity, the City was liable for failing to warn of a dangerous condition. Citing Cameron v. State of California (1972) 7 Cal.3d 318, 327, the Court of Appeal explained that the California Supreme Court has held “that a public entity may be held liable for failure to warn of a concealed dangerous condition even if that dangerous condition was covered by design immunity”:

Thus, under Cameron, the city’s entitlement to design immunity for its failure to include a bicycle lane at the site of Jonathan’s accident does not, as a matter of law, necessarily preclude its liability under a theory of failure to warn. Because it appears the trial court did not consider appellant’s failure to warn theory, we deem it advisable to allow the trial court to consider the failure to warn theory in the first instance.

Conclusion

So there you have it. Design immunity does not in and of itself shield a public entity from a claim that the public entity failed to warn of a concealed dangerous condition, even if that dangerous condition was covered by design immunity.

Ownership and Use of Architectural Plans and Drawings

Jane Tucker | Vandeventer Black

Who has the right to use architectural plans and drawings prepared by an architect for a specific project?  What happens if the project on which the architect was working and the architect both leave one firm and move to another firm?  What happens if one architect is retained to prepare preliminary plans and then another architect is retained to prepare final plans based on the preliminary plans?

Under copyright law, the architect who prepares architectural plans and drawings is considered the author and owner of the copyright in those plans or drawings, unless there is an agreement to the contrary.  One exception to this rule is when architectural plans and drawings are prepared by an employee within the scope of employment.  In that case, the work is considered a “work for hire” and the employer, not the employee architect, owns the copyright in that material.

The owner of the copyright in architectural plans and drawings has the exclusive right to control the use of that material.  This includes the right to reproduce the architectural plans and drawings, to prepare derivative works based on the architectural plans and drawings, and to distribute copies of those plans and drawings.

In order for anyone other than the owner of the copyright to use those plans and drawings, including the individual architect(s) who created the plans and drawings as an employee, the owner must grant permission for the works to be used by another. This is the case even when both the project and the individual architect leave the employer and move to another architectural firm.

Permission to use copyrighted materials (a “license”) may be expressly granted or may be implied from the circumstances.  An express license can be either written or unwritten. An implied license is by its nature unwritten, although its existence may be supported by certain writings.

The owner of the copyright in architectural plans and drawings may be deemed to have granted an implied license to another to reproduce and use its plans and drawings for purposes of completing a specific project.  The existence of an implied license depends upon the intent of the owner of the copyright to allow the plans to be used in the future even without the owner’s continued involvement in the project.  In determining intent, the courts have developed a three-prong test:

  1. Whether the parties were engaged in a short-term discrete transaction (favors implied license) or a long term involvement in the project (favors no implied license);
  2. Whether the parties utilized written contracts, such as the standard AIA contract, providing that copyrighted materials could only be used with the architect’s future involvement or express permission;
  3. Whether the architect’s conduct during the creation and delivery of the material indicates that use of the copyrighted material without the architect’s consent was permissible.

See Nelson-Salabes Inc. v. Morningside Development LLC, 284 F.3d 505 (4th Cir. 2002).

Therefore, the answers to the questions in the first paragraph of this article depend upon who is the owner of the copyright in the architectural plans and drawings and whether the owner of the copyright has granted either an express or implied license to another to use the plans and drawings.

Use of architectural drawings without a license from the owner is copyright infringement.

Assessing Defective Design Liability on Federal Design-Build Projects

Dirk Haire, Adam Hamilton and Dana Molinari | Fox Rothschild

A common misconception by many government officials is that a design-builder is always responsible for every design error or omission on a design-build project.  This article examines the actual liability standard applied by the courts and boards of contract appeals when a design defect arises on a federal design-build project.

Background: Design-Build Contracts and the Spearin Doctrine

Design-build contracts combine the design and construction elements of a construction project into one contract.  Design-build contracts often include two types of specifications: design and performance.  Design specifications may set forth various parameters, such as precise measurements, tolerances, and materials.  In doing so, the specifications create a fixed “roadmap” governing a contractor’s performance of the project.  Performance specifications, on the other hand, set forth “operational characteristics” to achieve a particular objective or standard, but generally leave the details to the contractor. 

When the government provides a contractor with design specifications, typically as a portion of the “bridging documents” included in the solicitation, it impliedly warrants that those specifications are free of defects and, if properly followed, will facilitate a successful project build.  The concept of implied warranty is best known as the Spearin doctrine, which developed from the seminal US Supreme Court case United States v. Spearin, 248 U.S. 132 (1918).  Under the Spearin doctrine, a contractor will not be held liable for defects in the government-provided specifications the contractor was required to follow.  As a result, despite the nature of a design-build contract, the government remains responsible for the design specifications it provides to the bidding contractors in the design-build solicitation.  This fact is not always understood by government contracting officials.  Since most design-build contracts are a combination of both design and performance specifications, determining the type of specification that caused the design defect is a paramount consideration in determining design liability. 

Application of the Spearin Doctrine to Design-Build Contracts

Contractors regularly exercise broad discretion with respect to the specifications in design-build contracts, meaning the Spearin doctrine will only apply if the government substantially participates in developing specifications in a way that takes discretion away from the contractor.  As such, courts and boards will typically deny recovery in cases where the contractor “voluntarily” and substantially participated in drafting design specifications. 

The sections below discuss cases of contractor success in recovering against the government using defective design theories of recovery, as well as an examples of cases where a contractors were unsuccessful.

A.        Cases Involving Successful Defective Design and Specification Claims

Metcalf Const. Co. v. United States, 742 F.3d 984, 996 (Fed. Cir. 2014).

In Metcalf, the government provided erroneous soils reports which caused the contractor to incur over $4.8 million in soil excavation costs.  Specifically, the government issued a revised request for proposals which provided a “soil reconnaissance report,” stating it was “for preliminary information only.”  The report turned out to be wrong.

At the trial court level, the Court of Federal Claims (COFC) held that the government was not liable for the removal of expansion soil because its investigative soil report was for “preliminary information only.”  On appeal, the Federal Circuit disagreed, holding that statement merely signaled “that the information might change,” not that the contractor would bear the risk if the “preliminary information turn[ed] out to be inaccurate.”  Furthermore, none of the provisions requiring the contractor to check the work site as part of the design-build contract “expressly or implicitly” warned that the contractor could not rely on the government’s soil report or that the contractor bore the “risk of error” contained in the government’s soil report.  Simply put, under Spearin, the government remained liable for its own design error under this design-build contract. 

Drennon Constr. & Consulting, Inc., 13 B.C.A. (CCH) ¶ 35213 (Jan. 4, 2013)

In Drennon, the Civilian Board of Contract Appeals (CBCA) decided in favor of a contractor who claimed the government’s flawed geotechnical information caused it to incur unexpected costs when a hillside collapsed.  The government argued that because of the design-build nature of the procurement, the contractor should be liable for the hill collapse that occurred during excavation.  The CBCA disagreed, noting that the contractor’s design had to fall within the confines of its own engineering firm’s design, not the government-provided geotechnical information. 

Drennon is an example of how an agency’s involvement in project design during the solicitation stage of a contract can be the basis of a Spearin defective design claim.  Drennon also exposes the common misconception that the government bears no liability simply because the federal contract is design-build.  Indeed, a contractor may prevail on a claim arising from a design-build contract if it can demonstrate that it incurred damages caused by defects in specifications provided by the government.

Appeals of — CDM Constructors, Inc., ASBCA No. 60454, 18-1 B.C.A. (CCH) ¶ 37190 (Oct. 24, 2018).

The contractor in CDM Constructors successfully argued that it was entitled to an equitable adjustment for costs it incurred as a result of defective specifications contained in the Army Corps of Engineers’ (“Corps”) concept drawings in a design-build contract.  The Board concluded that, “by providing the concept drawings, the Corps warranted that satisfactory performance would result from adherence to those drawings.”  Therefore, the Corps “breached that warranty” when it later rejected the contractor’s design that followed those concept drawings.  The Corps argued that the drawings provided were not specifications because the contract did not require the contractor to comply with them.  The Board rejected this argument, holding that these “concept drawings” were indeed specifications and the contractor had to rely on them in order to price its proposal. 

The Corps further argued that the contractor’s reliance on the concept drawings was unreasonable because the drawings were inconsistent with directives in the contract.  The Corps contended that the directives took precedence over concept drawings.  The board, however, found the concept drawings to be consistent with the contractual requirements.  Therefore, “[b]ecause the concept drawings were not trumped by inconsistent [contractual requirements], those drawings created an implied warranty that adherence to the drawings would result in satisfactory contract performance, which the Corps breached.” 

B.        Cases Involving Unsuccessful Defective Design Claims

In Re Lovering-Johnson, Inc., ASBCA No. 53902, 05-2 B.C.A. (CCH) ¶ 33126 (Nov. 17, 2005).

In Re Lovering-Johnson involved government-drafted preliminary drawings.  The drawings at issue were of drainage piping that included the pipe sizes and language that “expressly indicated” that design concepts and information must be verified before development of final design by the contractor.  The contractor failed to verify the government’s design concepts, which turned out to be defective.  The CBCA rejected the contractor’s claim for failing to follow the contract requirements.

As demonstrated in In Re Lovering-Johnson, a Spearin claim is not viable where a contractor has assumed responsibility to develop aspects of the preliminary drawings and specifications for design elements.

Conclusion

The government will often try to avoid liability in design-build contracts by assigning much of the responsibility for concept design to the contractor.  However, design-build contractors do not always bear the risk for design errors.  When the government plays a substantial role in developing initial designs during the solicitation process, design-build contractors assume less risk of design error liability and have a greater chance to succeed in recovering additional costs associated with defective government-provided specifications.

California Contractor Tests the Bounds of Job Order Contracting

Garret Murai | California Construction Law Blog

Most contractors have heard of design-bid-build, design-build, construction manager at risk, and even public private partnerships, various project delivery methods, which, at their heart, focus on balancing the interests of the various parties involved in a construction project, from owners, to design professionals, to contractors. There’s one project delivery method you may not be as familiar with though: Job Order Contracting, also known by its acronym JOC.

JOC contracting is a project delivery method used on public works projects and has been authorized to be used by California K-12 school districts, community colleges, CalState universities, and the Judicial Council of California, which, among other things, is responsible for the construction of California state courts. It is intended to be used on smaller, independent, long-horizon project typically involving maintenance, repair and refurbishment. Think periodic maintenance of facilities.

JOC contracts are administered by public entities issuing a request for proposals. The public entity then awards a JOC contract to the lowest responsible bidder. The lowest responsible bidder then enters into a JOC contract with the public entity. JOC contracts typically have a duration of one (1) year and are limited to a total construction value of $4.9 million increased annually based on the Consumer Price Index. When entering into a JOC contract, a JOC contractor agrees to perform work at prices set forth in a Construction Task Catalog also known as a unit price book which includes current local labor, material and equipment costs. Unit prices are then adjusted by a “bid adjustment factor” based on the JOC contractor’s bid. When work is needed, the public entity will then issue a job order to the JOC contractor.

The next case, Los Angeles Unified School District v. Torres Construction Corp., Case No. B291940 (October 26, 2020), 2nd District Court of Appeal, involved a JOC contract, a JOC contractor who charged rates higher than those specified in the unit price book, and the JOC contractor’s defenses against claims by the public entity that it had overcharged for its work.

The Torres Case

Torres Construction Corp. was awarded a JOC contract by the Los Angeles Unified School District. The JOC contract included a Construction Task Catalog with unit prices as well as general conditions. Under the general conditions, after a job order is issued by LAUSD, Torres and LAUSD were to participate in a “joint scope meeting” from which the parties would develop a detailed scope of work. LAUSD would then issue a request for proposals to Torres who would prepare a “job order proposal” setting forth the cost of performing the work in accordance with the unit prices set forth in the Construction Task Catalog. Once approved, the job order proposal becomes a part of the JOC contract.

Between 2005 and 2008, Torres performed work on five projects under the JOC contract involving the installation of kitchen equipment and electrical upgrades. In 2011, LAUSD audited Torres’ project files as it was permitted to do under the JOC contract. Under the JOC contract, LAUSD was permitted to conduct an audit for period of up to four (4) years from the date a notice of completion was recorded. If the audit revealed overpricing or overcharges in excess of one percent (1%) of the total contract amount, then, an adjustment would be made equal to the overpricing or overcharging and LAUSD would be entitled to be reimbursed for the cost of the audit. The audit performed by LAUSD revealed substantial irregularities in the amounts charged by Torres, specifically, Torres did not supply equipment specified in its job order proposals, did not use pricing in line with unit bid pricing in the Construction Task Catalog, and did not provide the services specified in its job order proposals.

In 2012, LAUSD filed suit against Torres and its performance bond surety Western Surety Company. While the case was pending, LAUSD filed a motion for summary judgment on certain of the job order proposals which it prevailed on. As to other job order proposals, the trial court granted LAUSD’s motion for directed verdict following trial at the close of evidence. And, finally, as to the final job order proposals, the jury found in favor of LAUSD, and the trial court later awarded LAUSD prejudgment interest and attorney’s fees.

Torres appealed.

The Appeal

On appeal to the 2nd District Court of Appeal, Torres made a number of arguments challenging the trial court’s granting of LAUSD’s motion for summary adjudication, LAUSD’s directed verdict, and the jury verdict. Among other things, Torres argued:

  1. The JOC contract, because it required that job order proposals be submitted after-the-fact, was not an enforceable contract but merely an agreement to negotiate.
  2. The JOC statute required that LAUSD obtain an estimate so that it could compare Torres’ job order proposal with the estimate, and because LAUSD failed to obtain an estimate, no contract was formed because LAUSD failed to satisfy a condition precedent to entering into a contract.
  3. By accepting Torres’ job order proposals, LAUSD waived its right to claim that Torres breached the pricing provisions of the JOC contract.

A. JOC Contract: Enforceable Contract or Mere Agreement to Negotiate

As to the first issue, whether the JOC contract was an enforceable contract or merely an agreement to negotiate, the Court of Appeal held that the JOC contract was an enforceable contract not merely an agreement to negotiate, because it contained “every key term of future job orders except one: the Scope of Work for any projects which LAUSD would assign to Torres.”

Further, held the Court of Appeal, as to the one key term not negotiated, the scope of work, a scope of work was ultimately agreed to by the parties after Torres submitted and LAUSD approved Torres’ job order proposals:

LAUSD is not suing on a Scope of Work that never materialized. There is no claim that the required Scope of Work for each job order was not established as required by the General Conditions of the JOCs. Under the General Conditions, once the Scope of Work is properly established, LAUSD issues its RFP, and the contractor is required to respond with a proposal which prices the work using the applicable formulas in the General Conditions. This is arithmetic, not negotiations.

B. LAUSD’s Failure to Obtain an Estimate: Failure to Satisfy a Condition Precedent or Not

Under the JOC statute, “[I]n order to prevent fraud, waste, and abuse,” a K-12 school district using a JOC project delivery method is required to “[p]repare for individual job order developed under a job order contract an independent unified school district estimate.” The estimate it to be “prepared prior to the receipt of the contractor’s offer to perform work” and is supposed to be “compared to the contractor’s proposed price to determine the reasonableness of that price before issuance of any job order.”

According to Torres, the statutory requirement that LAUSD obtain an estimate “prior to” receipt of Torres’ job order proposal was a condition precedent to entering into an enforceable contract, and because LAUSD failed to obtain an estimate “prior to” receipt of Torres job order proposal, the JOC contract was unenforceable.

The Court of Appeal disagreed finding that “[t]here is no language in the statute expressly conditioning a contractor’s duty to prepare a correctly priced proposal on LAUSD obtaining an independent estimate.”

Note: While I don’t necessary disagree with the Court’s conclusion that obtaining an estimate is not a condition precedent, I’m also not quite sure that I see the Court’s logic here, since the condition precedent argued by Torres’ is not its duty to prepare a correctly priced proposal, but rather LAUSD’s duty to obtain an estimate before receipt of Torres’ job order proposal as stated in the JOC statute (i.e., “prior to”).

C. Acceptance of Torres’ Job Order Proposals: Waiver by LAUSD of the Pricing Provisions of the JOC Contract or Not

Finally, Torres argued that by accepting Torres’ job order proposals, LAUSD waived the pricing provisions of the JOC contract even if the pricing contained in the job order proposals were at variance with the pricing provisions of the JOC contract. Again, the Court of Appeal disagreed.

First, the Court of Appeal pointed out, the JOC contract includes an anti-waiver provision which provided that:

No action or failure to act by [LAUSD] shall constitute a waiver of a right, remedy, or duty afforded to [LAUSD] under the Contract Documents, nor shall such action or failure to act constitute approval of or acquiescence in a breach thereunder, except as may be specifically agreed to in writing.

Second, the Court of Appeal pointed out, for there to have been a waiver, LAUSD would have had to have waived two rights, the right to have a proposal prepared by Torres in accordance with the JOC contract, and the right to audit Torres’ project files and recover overcharges:

Further, in order for appellants to prevail, LAUSD would have to have waived two rights: 1) the right to have a proposal prepared in accordance with the pricing formulas; and 2) the right to later audit the job order and recover overcharges. Appellants have not pointed to any admissible evidence showing that LAUSD personnel were aware that Torres’s proposals violated the General Conditions pricing formulas or that LAUSD expressly relinquished the right to require those formulas. Appellants point to the conduct of LAUSD personnel in approving and signing the job orders. Even assuming for the sake of argument that signing a job order without checking for pricing conformity could be viewed as conduct inconsistent with an intent to enforce the General Conditions pricing formula and that such waiver was not prohibited by the express terms of the anti-waiver provision, this conduct would only be inconsistent with an intent to enforce the pricing formulas through the job order issuance process. The conduct is not inconsistent with a belief that a subsequent audit could and would make a compliance determination and that any overcharges could be recovered. Thus, for waiver purposes, LAUSD’s conduct is not inconsistent with an intent to enforce the pricing formulas.

Finally, the Court of Appeal held that permitting a waiver would be inconsistent with the JOC process “by removing the requirement that a contractor follow the pricing formulas in the General Conditions in preparing its proposal.”

Conclusion

So, there you have it. A broad overview of the JOC project delivery method, which, unlike other kinds of project delivery methods, essentially includes two different proposal mechanisms, one when a contractor bids on a request for proposals, and another when a JOC contractor bids on a specific project, and one Appellate Court’s view of the application of contractual principals to that project delivery method.