U.S. Court of Appeals for 11th Circuit Upholds Dismissal of EPC Contractor’s Claim for Damages Caused by Four Hurricanes, Concluding That Terms of Force Majeure Clause Barred Recovery of Increased Costs

S&B/BIBB Hines PB3 Joint Venture v. Progress Energy Florida, Inc.
2010 U.S. App. LEXIS 2875 (11th Cir. Feb. 11, 2010)

S&B/BIBB Hines PB3 Joint Venture, S&B Engineers and Contractors, LTD (“S&B) agreed to perform engineering, procurement and construction on a fixed-price basis (the “Contract”) for two electric generating plants in Polk County for the project owner and defendant, Project Energy Florida, Inc. (“Project Energy”). During the course of construction, four hurricanes struck Polk County resulting in a shortage of labor and materials and a corresponding increase in the cost of construction for S&B. S&B sought approximately $40 million in additional compensation as a result of this extraordinary event. S&B’s claim for additional compensation was denied by Project Energy and S&B filed suit. The district court dismissed the majority of S&B’s breach of contract and other claims on a Rule 12(b)(6) motion holding that the fixed price Contract precluded additional compensation beyond the Contract price.

On appeal, the Circuit Court affirmed the decision. S&B argued that despite the fixe-price nature of the Contract, the fixed price does not include S&B’s costs incurred due to unforeseeable force majeure events. The Contract’s force majeure provision, however, limited the contractor’s relief for delay resulting from a force majeure event to an extension of time, providing:

Should contractor be delayed in the commencement, performance or completion of the Work due to any of the conditions provided for under Section 37B, Force Majeure, Contractor shall be entitled to an extension of time only, provided however, that in no event shall Contractor be entitled to any increased costs, additional compensation, or damages of any type resulting from such Force Majeure delays, upon the conditions as permitted and provided for under Section 37B. Contractor shall use all reasonable means to minimize the extent of any interference, disruption, hindrance, or delay as aforesaid and to mitigate any and all costs from or related to any such cause or occurrence.

[emphasis added by Court]

S&B interpreted the provision to impose an express obligation on S&B to mitigate costs related to a Force Majeure event and a corresponding implied obligation on Project Energy to compensate S&B for any costs it incurred in responding to a Force Majeure event. The Court disagreed, finding the provision to “unambiguously foreclose the recovery of additional compensation for costs incurred due to Force majeure events…”. The Contract further provided that the “Contractor’s sole and exclusive remedy for a Force Majeure event is an extension of time. Under no circumstances whatsoever shall Contractor be entitled to compensation as the result of a Force Majeure event.” [emphasis added by Court]. The Court concluded that no “natural reading” of the S&B’s obligation to mitigate costs in the event of a Force Majeure event implicitly required Project Energy to reimburse S&B for non-delay costs. Further, a plain reading of the Contract as a whole indicated that the parties “intended to include all labor and materials costs in the firm, fixed price, even those arising from Force Majeure events.” In sum, the Court found that Project Energy had no contractual obligation to compensate S&B above the Contract price.

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