Gordon Rees Scully Mansukhani New Orleans partners David S. Bland and Brian J. Comarda, as well as associate Jack E. Byrom, obtained a significant appellate victory for a major offshore services company when the Fifth Circuit Court of Appeals upheld a $12 million judgment in its favor. The dispute arose out of a contract in which the offshore services company engineered and fabricated two compression modules for installation on an oil platform in the Gulf of Mexico. Due to the modules’ lack of design specifics, the parties’ contract included a “hybrid” pricing model, where some disciplines would be fixed price and others would be reimbursable based upon unit rates or time and materials.
The hybrid model included a “target estimate” of costs, but with the caveat that the estimate was subject to change during the engineering and fabrication process. As the court specifically noted, the contract included no “not-to-exceed” price or other price cap. During the engineering phase of the project, the evolution of the design resulted in reimbursable costs that exceeded the parties’ target estimate. When the builder billed pursuant to this pricing model, however, the customer refused to pay, insisting that changes to the design constituted changes to the scope of work that would require a change order. The builder brought suit, and the customer filed a counterclaim alleging various contractual breaches. The parties filed cross-motions for summary judgment.
In its memorandum opinion, the District Court dismissed each and every one of the customer’s counterclaims and ruled that the builder was owed the entire value of its unpaid invoices. Finding that there was no change to the scope of work as a matter of law, the District Court ruled that that the customer must pay each and every unpaid invoice, plus the builder’s attorneys’ fees and interest.
On appeal, the Fifth Circuit agreed with the District Court in a per curiam decision, using the statements of the customer’s own witnesses that they knew and understood the hybrid pricing model and that engineering evolution during construction did not amount to a change in the scope of work. Accordingly, the Fifth Circuit affirmed the District Court’s decision and held that the builder was entitled to full payment as a matter of law. The Fifth Circuit also rejected the arguments of the customer that the payment provision of the contract contained a “condition precedent” under Texas law, finding that the provision contained no conditional language.