The Houston [1st] Court of Appeals has affirmed a summary judgment in favor of a pipeline company in a dispute with its contractor over liability for various change orders requested by the contractor.
Wood Group USA, Inc. v. Targa NGL Pipeline Company, LLC (No. 01-21-00542-CV; issued August 17, 2023) stemmed from a natural gas liquids pipeline construction project. In September 2018, Targa contracted with Wood Group to build an 80-mile section of pipe in Parker County for a total contract price of $43 million. The contract required Wood to complete the project by March 6, 2019. Bad weather and other difficulties slowed the project down and resulted in the parties agreeing to several change orders raising the contract price to more than $60 million, as well as pushing back the completion deadline. In the event, Wood completed construction in July 2020. Targa accordingly paid Wood the full $60 million in December 2020.
The dispute arose over Wood’s claim for an additional $25 million for several change orders submitted after Change Order 3, which raised the contract price by more than $17 million. Targa refused to agree to the orders and filed a declaratory judgment action. Wood countersued for breach of contract. Targa then asserted affirmative defenses under the contract for release-or-waiver, accord and satisfaction, and Wood’s failure to comply with the contract’s notice requirements for change order requests. The trial court granted summary judgment for Targa on all claims and awarded $250,000 in attorney’s fees under Chapter 37, CPRC (declaratory judgment). Wood appealed.
The court of appeals affirmed. The case centered on the contractual effect of Change Order 3 on Wood’s subsequent requests. According to the contract, Wood had the right to a change order only upon compliance with strict notice provisions (written notice within 7 days from the date Wood knew or should have known of the relevant circumstances, together with a detailed statement of the facts upon which the request was based). The contract also ruled out damages for force majeure (it only affected the completion date), waived Wood’s right to request a change order if it failed to comply with the notice requirements, and provided that any agreed change orders constituted “a full and final settlement and accord and satisfaction of all effects of the change as described in the Change Order upon the Changed Criteria and shall be deemed to compensate [Wood] fully for such claim.” It further released any claims Wood might assert for “any other consequences arising out of, relating to, or resulting from such change reflected in” the order.
Change Order 3, to which the parties agreed in January 2019, addressed additional HDD bores necessary for the project, which increased the length of HDD drilling from 46,200 to 76,400 feet. Under the order, Targa paid Wood $1.3 million (in addition to contractual unit prices) “as full and complete compensation for additional equipment, labor, tools, rental, mobilization, subsistence, and all other potential cost or expense to complete all bores (regardless of quantity, length, type or difficulty.” Change Order 3 included its own release-or-waiver clause. Subsequently, however, Wood sought nine additional change orders for weather-related delays, delays caused by inadequate access to the jobsite, lack of temporary workspace, and other issues. Targa rejected these based on the release-or-waiver language of Change Order 3.
Wood argues that Change Order 3’s release only covered changes addressed in that order (i.e., the cost of HDD bores), not those in other requests. The court of appeals disagreed, holding that the trial court properly construed Change Order 3 more broadly based on the “full and complete compensation” language and its adjustment of the project schedule. To the extent that requested change orders were based on information known to Wood prior to January 2019, the date Change Order 3 was executed, the release applied to exclude Wood’s claims. For change orders requested after that date, Wood argued that Targa’s “continuing breach of contract” by failing to provide adequate access to the site and temporary workspace and refusing to pay for delays caused by bad weather. Targa countered that Wood had failed to provide the contractually required notice for these requests, that the contract precluded Wood from recovering for force majeure events, and that Wood assumed the risk of bad weather not rising to the level of a force majeure event. The court of appeals agreed, holding that Wood did not comply with the notice requirement and thus waived its claims.
Trying another tack, Wood argued that § 16.071(a), CPRC, voided the contract’s notice requirements and invalidated the trial court’s summary judgment ruling. The statute provides that “[a] contract stipulation that requires a claimant to give notice of a claim for damages as a condition precedent to the right to sue on the contract is not valid unless the stipulation is reasonable. A stipulation that requires notification within less than 90 days is void.” The court of appeals, however, held that the statute does not apply to a contractual notice requirement for change order requests, only to a claim for damages (i.e. a cause of action) (citations omitted). Here the contract “simply require[d] ‘notice of the happening of an event’ prior to any accrual of a cause of action, and the event ‘may or may not result’ in a breach of contract claim” (citation omitted).
This case is interesting for a number of reasons, but the striking thing to us is how tightly Targa drafted the construction contract from the get-go, leaving Wood with virtually no wiggle room when things started to go sideways. The contract easily anticipated the issues likely to arise when construction bogged down and determined all of Wood’s claims at the summary judgment stage. Targa’s deployment of the UDJA (Chapter 37) further resulted in a tidy $250,000 attorney’s fee award, which more than paid for its trouble. We doff our caps to their counsel for a splendid performance all the way around.
