Utah Court of Appeals
Can contractors claim commercial impracticability when material costs increase dramatically after contract formation? Kilgore Pavement Maintenance v. West Jordan City Explained
Summary
Kilgore Pavement Maintenance contracted with West Jordan City for road reconstruction at a fixed price of $697,901, including asphalt materials. After liquid asphalt oil costs increased from $350 to $1005 per ton, Kilgore requested a $91,000 price increase, which the city council rejected. Kilgore sued alleging commercial impracticability, but the district court dismissed the claim after finding Kilgore had assumed the risk of supply cost increases under the contract terms.
Analysis
The Utah Court of Appeals addressed an important question about commercial impracticability and risk allocation in construction contracts in Kilgore Pavement Maintenance v. West Jordan City.
Kilgore Pavement Maintenance contracted with West Jordan City for road reconstruction services at a fixed price of $697,901. The contract required Kilgore to furnish all materials, including asphalt, at its own expense. Shortly after contract formation, liquid asphalt oil costs skyrocketed from $350 per ton to $1005 per ton. Kilgore requested a $91,000 price increase to cover the dramatic cost increase, but the city council rejected the amendment.
Kilgore filed suit claiming commercial impracticability, arguing it was entitled to equitable adjustment of the contract price due to the unforeseen cost increases. The district court dismissed the claim, finding that Kilgore had assumed the risk of supply cost increases under the contract terms.
The Court of Appeals affirmed, focusing on the contract’s risk allocation provisions. The court examined articles 6.2(d) and 11.1(a), which expressly delegated responsibility to Kilgore to furnish materials at its own expense without any automatic change in contract price. Article 14.4 specifically disclaimed the City’s responsibility for Kilgore’s failure to perform or furnish work in accordance with contract documents.
The court held that “a party who assumes the risk of cost increases pursuant to contract terms cannot rely on a claim of impossibility/commercial impracticability.” While the contract included procedures for seeking price adjustments through change orders, these provisions did not eliminate Kilgore’s fundamental responsibility to furnish materials at the contract price.
This decision reinforces that express risk allocation in contracts will be enforced even when unforeseen events make performance more expensive. Contractors entering fixed-price contracts should carefully consider whether they are willing to assume the risk of dramatic cost increases in materials and labor.
Case Details
Case Name
Kilgore Pavement Maintenance v. West Jordan City
Citation
2011 UT App 165
Court
Utah Court of Appeals
Case Number
No. 20100123-CA
Date Decided
May 19, 2011
Outcome
Affirmed
Holding
A contractor who expressly assumes responsibility for furnishing materials at a fixed price cannot rely on commercial impracticability to excuse performance when material costs increase dramatically after contract formation.
Standard of Review
Questions of law reviewed for correctness, giving no deference to the decision of the trial court. Contract interpretation not requiring resort to extrinsic evidence reviewed for correctness, affording no deference to the trial court.
Practice Tip
When drafting construction contracts, carefully review risk allocation provisions regarding material supply costs and consider whether express assumption of risk clauses will preclude later claims for equitable adjustment based on unforeseen cost increases.
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