The Houston [14th] Court of Appeals has reversed a trial court order dismissing a general contractor’s lawsuit against Harris County Metro for contract and delay damages.
ISI Contracting, Inc. v. Metropolitian Transit Authority of Harris County, Texas (No. 14-24-00119-CV; August 5, 2025) arose from a contract dispute. ISI entered into an agreement with the Metropolitan Transit Authority of Harris County, Texas (Metro) for the installation of storm sewer lines and construction of roads near Metro’s Burnett Street Transit Center (the Project). Metro received and paid each pay request, less a retainage of 5%. Underground pipes and power lines delayed the Project, and Metro directed ISI to suspend work on the Project from March until August 31, 2015 to allow Metro to remove these obstacles. ISI removed its personnel and equipment, stopping short of a full demobilization and leaving materials on-site. Metro issued a succession of change orders, extending the completion date several months at a time. All the while, maintenance of the site continued. Metro requested that ISI submit proposals to remobilize so work could be completed and Metro could compensate ISI in accordance with the contract. But in January 2021 Metro terminated the contract and refused to pay what ISI demanded.
ISI filed suit against Metro, alleging breach of contract, quantum meruit, and promissory estoppel. ISI maintained that Metro’s actions prevented it from working by: (1) allowing structures to interfere with construction, (2) directing ISI to hold work when it could have been performed, (3) failing to issue notices to proceed or remobilize, (4) failing to sign and proceed under a change order after Metro had agreed to sign it, and (5) misleading ISI to believe that Metro was ready to continue work when it was not. Metro filed a plea to the jurisdiction based on governmental immunity. Despite Metro’s failure to submit any evidence in support of this plea or any challenge to a jurisdictional fact, the trial court granted the plea and dismissed ISI’s claims with prejudice. ISI’s motion for leave to file an amended petition, motion for a new trial, and motion to reconsider the order granting plea were all denied. ISI appealed.
In an opinion by Justice Wilson, the court affirmed in part and reversed in part. ISI first argued that the trial court erred in granting Metro’s plea to the jurisdiction because Metro waived governmental immunity under § 271.153, Local Government Code. The statute permits recovery of the balance due and owed by the local governmental entity under the contract (plus increased cost to perform directly resulting from owner-caused delays), the cost of change orders, and reasonable and necessary attorney’s plus interest. Citing Zachry Constr. Corp. v. Port of Houston Auth., 449 S.W.3d 98, 106-07 (Tex. 2014) and other authority, the court stated “that the waiver of immunity in the [statute] ‘does require a showing of a substantial claim that meets the [statute’s] conditions,’” but “does not depend on ultimate liability on a claim.” The question was whether “the pleader has alleged facts that affirmatively demonstrate the court’s jurisdiction to hear the cause.” ISI met this burden in this case, so Metro waived governmental immunity for ISI’s breach of contract claim.
The court turned next to ISI’s claims for unpaid retainage and termination for convenience. The construction contract provided that in the event Metro terminated performance of the work, ISI could submit a final termination settlement proposal, which it did. Metro denied the proposal, but ISI argued that the contract, while it gave Metro the right to terminate the work, it did not give Metro the right to terminate the contract. Consequently, when Metro and ISI did not agree on the amount Metro should pay for terminating the work, Metro must pay ISI contracted costs of work, including retainage. Metro argued that it had immunity from the claim because retainage never became due under the contract because ISI never completed the work and that Metro had no duty to pay any retainage. But this “disagreement on the merits,” the court noted, “is not relevant to the determination of whether this claim falls within the [statute’s] waiver of Metro’s governmental immunity.” Additionally, in response to Metro’s argument that the contract never uses the word “retainage,” ISI’s alleged direct damages for the breach include “the amount of damages for breach of contract payable and unpaid,” which covers retainage. The court thus held that ISI alleged facts sufficient to demonstrate a breach-of-contract claim for the retainage, defeating waiver of immunity.
As to ISI’s claim for amounts owed for change orders or additional work, Metro argued that it never executed a written change order, so there was never an “independent ‘contract subject to [§ 271.151(2).]’” ISI countered that the contract specifically required Metro to make an equitable adjustment andf written modification of the contract if it made a change order, regardless of whether it was oral or written. Once again, the court held that ISI sufficiently pleaded a breach-of-contract on its equitable adjustment claim. The court reached the same conclusion as to ISI’s claim that Metro breached the contract by failing to make an equitable adjustment covering delays in the project resulting from ISI’s discovery of underground pipes that conflicted with the work. Metro ordered the work stopped pending resolution of the conflict, which caused “an increase in ISI’s cost of, or the time required for, performing its work.”
ISI also incurred additional costs in maintaining the site while Metro resolved the pipe issue (it further involved relocation of a power pole, which should have been moved before the project ever started). This delayed the project for six years, resulting in ISI incurring substantial costs for delay. On this issue, however, the contract expressly barred recovery of damages for delay. ISI argued that in the Zachry case, SCOTX identified three exceptions to the enforceability of a no-damages-for-delay clause. ISI contended that the delays “were due to changed conditions not contemplated within the purview of the Contract.” It further argued that Metro acted in bad faith by causing ISI to wait an unreasonable time to perform. The court stated that “the Zachry precedent mandates the conclusion that any delay damages other than ‘amount[s] owed as compensation for the increased cost to perform the work as a direct result of owner-caused delays’ are consequential damages disallowed under section 271.153(b)(1).” ISI’s claim for home office overhead or delay damages consituted unrecoverable consequential damages because they were not “any amount owed as compensation for the increased cost to perform the work as a direct result of owner-caused delays.” The trial court thus didn’t err in determining that ISI failed to plead facts supporting a breach-of-contract claim for those damages. Immunity was not waived as to unabsorbed home office overhead.
The court of appeals reversed the trial court order dismissing ISI’s breach-of-contract claims for contract and delay damages (other than home office overhead), reasonable and necessary attorney’s fees, and statutory interest.
TCJL Intern Satchel Williams researched and prepared the first draft of this article.
