California Court: Dispute Over Contract Price Did Not Entitle Public Entity To Withhold Funds Due To Contractor


Recently, a California Court of Appeals, in East West Bank v. Rio School District, concluded that “a dispute over the contract price does not entitle a public entity to withhold funds due a contractor,” avoiding the Public Contract Code § 7107 penalties. It further noted its disagreement with the 2009 decision in Martin Brothers Construction, Inc. v. Thompson Pacific Construction, Inc., 179 Cal.App.4th 1401 (2009), and confirmed that the doctrine of unclean hands does not apply to Section 7107.

Ultimately, the Court of Appeals reversed the trial court’s judgment for (and award of $9,356,124.81) to FTR International, Inc. (“FTR”) and remanded the matter to the trial court with instructions to (1) limit the award of attorney fees to fees incurred solely in relation to FTR’s cause of action under Section 7107; (2) determine which, if any, of FTR’s extra work claims were not timely under Article 37D of the contract; and (3) to adjust the award of prejudgment interest, if necessary, to accord with any reduction in the damage award. In all other respects, the judgment was affirmed.