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Seeking more than $10 million in damages, Texas contractor P2MG, LLC sued a Los Angeles school district on October 29 of this year after a cross-country middle school repair project turned sour.

The defendant, the Los Angeles Unified School District (LAUSD), is alleged to have wrongfully terminated P2MG — who was hired as a contractor for repairs at a California middle school — over a contract dispute.

Court filings also list American Contractors Indemnity Company (ACIC), P2MG’s surety, as a defendant.

After P2MG’s termination and LAUSD’s filing of a performance bond claim, ACIC is said to have improperly paid four subcontractors almost $400,000 for work that was “not originally in the scope” of the original contract.

ACIC subsequently filed a UCC-1 lien against P2MG for the subcontractors’ labor and materials. As a result, P2MG claims to have been unable to acquire new contracts and opportunities worth an estimated $10 million, and is now suing the school district for compensation.

What is a UCC Lien? Learn more.

The Los Angeles Unified School District is a sprawling collection of a staggering 1,180 schools, enrolling a total of 734,000 students. To date, the district has completed almost 20,000 school modernization construction projects to provide upgraded facilities with the goal of improving learning environments for students.

Construction projects in the LAUSD are managed by the Facilities Services Division, which also oversees the district’s construction bond program. The program is currently valued at $27.5 billion and is intended to reduce school overcrowding by both building new schools and modernizing existing campuses.

Based in Houston with an office in Los Angeles, P2MG cites a wealth of experience with education-based construction projects. The construction management firm had completed over $450M worth of K-12, higher education, government, and private projects since 2003.

In the summer of 2017, P2MG began preparing to enter into a contract with LAUSD to undertake a number of repairs at the John A. Sutter Middle School in Winnetka, California. The parties agreed to move forward, and P2MG started their work.

According to court filings, sixteen months passed without issue and P2MG completed their work as agreed. The contractor then completed the punch list and sent LAUSD a Request for Certificate of Substantial Completion on February 5, 2019, which was signed and executed roughly three weeks later on February 27.

P2MG maintains that once the request was executed, both parties were in agreement that the work was complete.

Yet problems arose the following month when LAUSD allegedly submitted an updated punch list that contained items that were, according to P2MG, beyond what was originally covered in the agreed contract.

Despite the confusion, P2MG claims to have attempted to address any concerns or outstanding issues. P2MG’s complaint maintains that after submitting five revised change orders to LAUSD, the school district returned just one for signature and “never responded regarding the remaining outstanding change orders to cover the additional work LAUSD requested of P2MG.”

LAUSD canceled the project contract with P2MG on June 14, 2019.

According to court documents, LAUSD “falsely claimed that P2MG failed to cure deficiencies outlined in a Five Day Notice letter” that was issued on February 1. 

P2MG insists that the contract was wrongfully terminated, and that LAUSD used the updated punch-lists and change orders as an excuse to cancel the contract.

Court documents suggest LAUSD was aware the added punch-list items were “never part of P2MG’s scope of work,” and that the school district “never executed any change orders, as required by the Construction Contract, to include additional items.”

Learn how (and how not) a punch list should be used.

It is not clear if LAUSD was in fact aware of the conflicting obligations, or if these revisions were submitted erroneously.

After the termination, LAUSD filed a performance bond claim with ACIC, who in turn filed a UCC-1 lien against P2MG. P2MG claims this has had a substantially detrimental effect on its business.

Court documents suggest the lien forced P2MG to “shut down its Los Angeles office, hire multiple law firms to resolve the issues surrounding the wrongful termination, and directly resulted in P2MG’s failure to secure contracts worth more than $10 million.”

P2MG maintains that LAUSD is aware of its concerns, and claims to have documented all issues with the punch-lists and change orders. LAUSD purportedly failed to respond to P2MG’s communications.

Ultimately, P2MG is suing LAUSD for breach of contract and breach of the implied covenant of good faith and fair dealing, and is still seeking $10 million in damages at time of reporting.

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