Contractors Entitled to Attorneys Fees Through Performance Bond

Our office has always said that defending a case can be very expensive. As a matter of fact, if your claim is slightly above the limits of small claims court, it is often a wise decision to reduce your claim and take the case to small claims. The case we are writing about today deals with a public works project where a contract was entered into for 1.64 million dollars. In this case, the contractor was awarded attorney fees even though there was no attorney fees provision in the contract (which is usually the case with public works projects).

Mepco Services Inc. (Mepco) entered into a contract with the Saddleback Valley Unified School District (Saddleback) on a school renovation project. Mepco based its bid on plans that were provided by an architectural firm that Saddleback hired. There was no attorneys fees provision in the contract. However, as part of the contract, Mepco was required to furnish a surety bond to cover 100 percent of the contract price. The performance bond that Mepco obtained included an attorney fee provision. The contract stated that the work was to be completed within a specific time frame, and if it was not, Mepco would be liable for liquidated damages at $1,000 per day if work was not complete.

Shortly after work began, there were many change orders and delay damages due to inadequate plans and drawings from the architect as well as Saddleback's failure to timely approve and pay for the change order work. The parties disagreed as to whether Mepco was entitled to be paid for the additional work even though Saddleback representatives told Mepco to continue with the additional work.

Mepco sued Saddleback for breach of contract and Saddleback filed a cross-complaint for liquidated damages due to Mepco's delay in completing the project. Saddleback also named Hartford Fire Insurance Company (Surety) in their cross complaint since it was the performance bond surety. Saddleback contended that Mepco was to blame for the project delays and therefore Saddleback was entitled to liquidated damages and sought attorneys fees pursuant to the bond. The trial court found in favor of Mepco. Mepco then asked for attorney fees which the trial court granted.

Saddleback appealed the decision, but the appellate court affirmed the decision of the trial court. Since Saddleback brought in the Surety and sought enforcement of the bond on its counter claim, then Mepco was entitled to attorney fees on the bond. It was Saddleback that invoked the bond by raising it in its cross-complaint. Mepco argued that even though the contract did not allow for attorneys fees, the performance bond that Mepco was required to obtain was part and parcel of the agreement. The courts agreed that when you have a performance bond and a contract that they become one.

Download a PDF copy of CONTRACTORS MAY BE ENTITLED TO ATTORNEYS FEES THROUGH PERFORMANCE BOND