Los Angeles Unified School District v. Great American Insurance Co.
Facts
The District terminated its original school construction contractor and solicited proposals from replacement contractors, providing plans, specifications, and extensive pre-punch lists identifying visible defects in existing work. Hayward bid to complete the project on a time-and-materials basis with a guaranteed maximum price of $4.5 million, and the parties contracted on that basis. After work began, Hayward claimed it discovered latent defects in the prior contractor's work that were not noted on the pre-punch lists and sought nearly $2.85 million in extra compensation. Hayward alleged the District failed to disclose information in its possession, including information that would have alerted Hayward to latent defects and to flaws in Hayward's assumptions about the scope of remedial work.
Issue
May a contractor on a public works contract recover in contract for a public entity's failure to disclose material information affecting bid or performance costs when the plans and specifications themselves are not inaccurate, and if so, must the contractor prove affirmative fraudulent intent or active concealment?
Rule
A contractor on a public works contract may obtain relief for a public entity's nondisclosure without proving affirmative fraudulent intent only in limited circumstances: (1) the contractor submitted its bid or undertook performance without material information affecting performance costs; (2) the public entity possessed the information and was aware the contractor lacked it and had no reason to obtain it; (3) the specifications or other information furnished by the public entity misled the contractor or did not put it on notice to inquire; and (4) the public entity failed to provide the relevant information. A public entity is not liable for failing to disclose information that a reasonable contractor in like circumstances would or should have discovered on its own, and it is not responsible for a contractor's erroneous assumptions drawn from accurate information or unsupported assumptions drawn from silence.
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If the winning contractor later incurs major extra costs repairing the hidden corrosion, which statement is most accurate regarding the contractor's contract claim against the city?