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City Potentially Liable for Cost Overrun on Not-to-Exceed Public Works Contract

On a public works construction project, a contractor incurred additional costs and asserted a claim against the city.  The city denied the claim because the contract had a not-to-exceed price, and the city council and mayor did not approve contract modifications to exceed that amount.  City ordinances require approval for contract modifications and change orders exceeding ten percent of the original not-to-exceed amount. 

But the contractor argued that the ordinance did not apply because the excess costs did not result from a contract modification or change order.  In addition, the contractor argued that, in refusing to approve an increase in the not-to-exceed amount, the city breached the implied duty of good faith and fair dealing.  The court concluded that these questions were factual issues for the jury to decide. 

Finally, the court agreed with the city on its argument that the contract waived the contractor’s rights to interest under the Georgia Prompt Pay Act.  But the contract did not address the contractor’s right to attorney fees under the Act.  So this issue would be presented to the jury for determination. 

Here’s the opinion.