Industrial Accessories Company et al v. Southwest Electrical Contracting Services, Ltd.

Filing 116

FINDINGS OF FACT AND CONCLUSIONS OF LAW. Signed by Judge David Counts. (jb3)

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 1 of 100

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
MIDLAND/ODESSA DIVISION
SOUTHWEST ELECTRICAL
CONTRACTING SERVICES, LTD.,
Plaintiff,
v.
INDUSTRIAL ACCESSORIES
COMPANY AND ADELPHI
CONSTRUCTION, LC,
Defendants.

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No. MO:18-CV-00123-DC

FINDINGS OF FACT AND CONCLUSIONS OF LAW
A subcontractor performed electrical work for a general contractor on two frac sand plant
construction projects. The subcontractor alleges breach of contract against the general contractor
and seeks equitable adjustment for unpaid work and delay damages under the contracts. The
general contractor counterclaims for breach of contract, indemnity, negligence, and breach of
implied warranties related to Plaintiff’s allegedly deficient performance under the relevant
contracts. This case, first filed in Texas state court and subsequently removed to federal court,
was tried to the Court on March 2, 2022, through March 4, 2022.
The Court makes the following findings of fact and conclusions of law following the
bench trial on the claims and counterclaims that remain after the Court’s Federal Rule 52(a)
partial

findings

SERVICES,

dismissing

LTD.’s

misrepresentation,

and

Plaintiff

(“Plaintiff”
negligent

or

SOUTHWEST
“SWECS”)

claims

misrepresentation

1

ELECTRICAL

(Doc.

for

CONTRACTING

quantum

105)

meruit,

against

false

Defendants

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 2 of 100

INDUSTRIAL ACCESSORIES COMPANY (“Industrial Accessories”) and ADELPHI
CONSTRUCTION, LC (“Adelphi”) (collectively, “Defendants” or “IAC”).1
Following trial, and for the reasons that follow, the Court FINDS and CONCLUDES
that Plaintiff is entitled to recover $85,057.74 plus prejudgment interest on its breach of contract
claim against Defendants; that Defendants are entitled to recover $2,091,409.77 plus
prejudgment interest on their counterclaim against Plaintiff for breach of contract and indemnity,
and the Court will enter judgment in favor of Defendants on those claims in accordance with this
memorandum opinion after offsetting the amount awarded to Plaintiff. Except for attorney fees,
all other relief not expressly granted herein is DENIED and the parties’ remaining claims are
DISMISSED WITH PREJUDICE except to the extent set forth in this opinion.
I.

INTRODUCTION

On October 8, 2017, and November 1, 2017, SWECS submitted proposals for electrical
work for the Preferred Sands of Atascosa, LLC South Texas (“STX”) and Preferred Sands of
Monahans, LLC West Texas (“WTX”) frac sand plants, respectively. The STX sand plant is in
Atascosa County, Texas. The WTX sand plant is in Ward County, Texas. Industrial Accessories
contracted with the leasehold owners of STX and WTX directly or through the leasehold owners’
agents for the design, the procurement, and the construction of the frac sand plants. Industrial
Accessories also contracted with Adelphi to provide construction management services. IAC
subcontracted with SWECS to furnish and install electrical work at both STX and WTX.
SWECS claims IAC breached contracts entered by the parties regarding the electrical
work performed by SWECS at STX and WTX and that IAC owes SWECS contract damages.
IAC counterclaims that SWECS breached the terms and conditions set forth in IAC Master
Defendants’ fraudulent lien counterclaims are DENIED as moot. Accordingly, the only live claims before the
Court include SWECS’s breach of contract claim, and IAC’s counterclaims for breach of contract, indemnity,
negligence, and breach of implied warranties. A number of affirmative defenses asserted by the parties also remain.
1

2

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 3 of 100

Supplier Terms and Conditions (“T&Cs”), which were attached to each of the purchase orders
(“POs”).

IAC also brings counterclaims for indemnity, negligence, and breach of implied

warranties.
Having considered the pleadings of the parties, the evidence, proposed findings of fact
and conclusions of law, and arguments of counsel, the Court issues the following findings of fact
and conclusions of law. For the reasons set out below, the Court GRANTS SWECS’s claim
against IAC for breach of contract, GRANTS IAC’s counterclaims for breach of contract and
indemnity, and DENIES IAC’s counterclaims for negligence and breach of implied warranties.
II.

APPLICABLE LAW

This state law action is brought pursuant to the Court’s diversity jurisdiction. 28 U.S.C.
§ 1332(a). SWECS is a Texas limited partnership that removed this action to this Court and has
been realigned as Plaintiff. Industrial Accessories is a Kansas corporation that initiated this
action and has been realigned as a Defendant. Adelphi is a Kansas limited partnership that
initiated this action and has also been realigned as a Defendant. The amount in controversy
exceeds the sum of $75,000.00, excluding interest and costs.
Originally filed in state court, Cause No. B-18-06-0662-CV, in the 161st District Court,
Ector County, Texas, this action was removed to the Midland/Odessa Division of the Western
District of Texas. Venue is proper in this Court under 28 U.S.C. § 1441(a) because the state
court where the suit was pending is in this district and division. The parties agree venue is
proper. Pursuant to diversity jurisdiction, Texas law governs the substantive law claims of
SWECS’s breach of contract cause of action and IAC’s counterclaims for breach of contract,
indemnity, negligence, and breach of implied warranties.2

2

Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938). Regarding whether Texas or Kansas law applies, the T&Cs and
POs have a Kansas choice of law provision. However, such provision may be voidable under Tex. Bus. & Com.

3

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 4 of 100

III.
A.

BACKGROUND

Parties
Industrial Accessories is an Engineering, Procurement, and Construction (“EPC”)

contractor with specialization in the design and construction of industrial projects, like steel,
cement, plastic, frac sand, and ethanol plants. Adelphi is a wholly owned subsidiary of Industrial
Accessories and performs construction functions on Industrial Accessories’ industrial projects.
Preferred Sands, operating in Texas through Sand Mining of Texas, LLC and Letterkenny
Ranch, LLC (“Preferred Sands”), is a frac sand mining company.
SWECS is a full-service electrical contractor. Industrial Accessories contracted with
Preferred Sands for the design, procurement, and construction of the frac sand plants. Industrial
Accessories also contracted with Adelphi to provide construction management services. IAC
subcontracted with SWECS to furnish and install electrical work at both STX and WTX.
B.

Facts
In 2017, Preferred Sands hired IAC as an EPC contractor to build two frac sand facilities

in Texas. Each facility contained two plants—a wet plant and a dry plant. Preferred Sands
located one facility in Poteet, Texas (STX) and another in Monahans, Texas (WTX). Preferred
Sands erected each facility in phases, building the wet plant as one phase and the dry plant as
another phase. On October 8, 2017, and November 1, 2017, SWECS submitted proposals for
electrical work for the STX and WTX frac sand plants, respectively.
In October 2017, IAC and SWECS negotiated and entered into two contracts for SWECS
to perform electrical subcontract work at the STX wet and dry plants. In November 2017, IAC
and SWECS negotiated and entered into two contracts for SWECS to perform electrical
Code Ann. § 272.001. Neither SWECS nor IAC urges the application of Kansas law. Therefore, the Court applies
Texas law, which the parties assert is substantively the same. R.R. Mgmt. Co., L.L.C. v. CFS La. Midstream Co.,
428 F.3d 214, 222 (5th Cir. 2005).

4

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 5 of 100

subcontract work at the WTX wet and dry plants. IAC approved the SWECS proposals and
issued two base POs per facility—for a dry plant and a wet plant. The original four POs were
fixed-cost contracts and shall collectively be referred to as the Base Work or Base Scope POs.
SWECS performed electrical work at the STX and WTX facilities between October 2017
through 2018.
During this time, Preferred Sands added additional scopes of work to the underlying STX
and WTX projects—either changes to the Base Work POs or entirely new work. IAC, in turn,
asked SWECS to bid on this additional work. In response, SWECS issued either a written
change proposal or a bid for new work. IAC then accepted by issuing either a change order to an
existing PO or a unique PO for that scope of work. All additional work was agreed to in writing,
and SWECS billed IAC on both a fixed-cost basis and on a time and materials (“T&M”) basis.
C.

Procedural History
IAC filed suit against SWECS on June 7, 2018, in the 161st Judicial District Court for

Ector County, Texas. SWECS removed this action to the United States District Court for the
Western District of Texas, Midland/Odessa Division on July 13, 2018.

SWECS filed an

Unopposed Motion to Realign Parties (Doc. 18), asserting that SWECS should have the burden
to prove up its delay claims against IAC first before IAC prosecuted its claims under the express
provisions of the contract.
On May 13, 2019, SWECS joined Preferred Sands of Monahans, LLC, Preferred Sands
of Atascoa, LLC, and Signal Peak Silica, LLC (“Preferred Sands Defendants”) as defendants and
sought to foreclose and collect on certain mineral, mechanic’s, and materialman’s Liens filed
related to the STX and WTX facilities. (Doc. 19). SWECS stipulated to a settlement with the
Preferred Sands Defendants and moved this Court to dismiss the Preferred Sands Defendants,

5

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 6 of 100

which was granted. (Docs. 30, 31). Plaintiff filed its Third Amended Complaint on September
20, 2020. (Doc. 46).
SWECS claims IAC did not adequately compensate SWECS for the work performed.
SWECS alleges IAC regularly directed SWECS to proceed with additional work on the projects
without issuing or adjusting POs, including work relating to plant startup and commissioning.
According to SWECS, it fully performed the work IAC directed. As a result, SWECS claims it
incurred substantial costs for additional work and productivity loss. SWECS alleges it suffered
productivity loss on the STX project in the amount of $1,773,208.40, and on the WTX project in
the amount of $1,331,646.04.
As to STX, SWECS seeks to recover the following balances for unpaid invoices, which
IAC contends are not due and owing or are subject to offset:
Date
9/12/2018
5/17/2018

PO/Invoice #
E30974-17112
SC125-21

Description
Invoice
Terminations for dry plant
$10,500.00
Material provided on work excluded from SWECS $9,648.29
scope
$20,148.29

As to WTX, SWECS seeks to recover the following balances for unpaid invoices, which
IAC contends are not due and owing or are subject to offset:
Date
9/12/2018
3/21/2018
5/14/2018
5/14/2018
5/17/2018
5/17/2018
5/17/2018

PO/Invoice #
E32029-17125
SC125-7
SC126-19
SC126-20
SC126-21
SC126-22
SC126-23

9/12/2018
9/12/2018
9/12/2018
9/12/2018
9/12/2018
9/12/2018

SC126-27
SC126-28
SC126-29
SC126-30
SC126-31
SC126-32

Description
T&M for start up and commissioning
WTX Overtime impacts E1712/129
Added Wet Plant Triple Feed Hopper Vibrators
Temp power for wet and dry plants
Tero Technologies: Repair fiber damaged
Procure armored cable, authorized by Glenn Smith
Material provided on work excluded from SWECS
scope
Re-terminate FC-02 with signed work tickets
Re-work FD-010
Gather material to mount proximity switch & box
Order MA cable tray, unload tray
Temp power for rake motor
EWR 7: WTX remove VFD from water well pump
house

6

Invoice
$493,487.81
$627,123.00
$43,809.00
$50,222.00
$1,879.35
$32,000.00
$49,270.71
$15,376.06
$5,502.41
$8,457.38
$40,535.10
$6,461.13
$7,454.35

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 7 of 100

9/12/2018

SC126-33

9/12/2018

E31474-17125

3/22/2018

BC-E17125

EWR 6: WTX re-install cable tray removed for $12,740.41
conveyor installation
N.T.E. 20k: Upgrades to temporary power including $7,366.75
grounding, switch labeling
IAC Backcharge
($1,000.00)
$1,445,685.46

IAC filed its Third Amended Answer to Complaint and First Amended Counterclaim on
August 31, 2020. (Doc. 45). IAC asserts SWECS kept inaccurate records for work it performed
on a T&M basis and charged IAC for time not incurred or materials not used. Further, IAC
contends SWECS charged disparate rates for labor hours relative to the actual state licensure of
the workers. According to IAC, SWECS overbilled for T&M work due to these issues by
$183,291 for the STX facility and by $359,965 for the WTX facility, for a combined total of
$543,256.
Next, IAC argues SWECS performed deficient work on both the STX and WTX
facilities, including code violations, incorrect installations, missing components, inaccurate or
incomplete record-keeping and labeling, unskilled labor, and limited project supervision. IAC
also complains not all SWECS employees who performed work on the STX and WTX facilities
held licenses required by the Texas Department of Licensing and Regulation (“TDLR”). IAC
seeks to recover from SWECS damages and/or offset in the amount of $3,103,554.00.
IAC unsuccessfully moved for summary judgment on December 16, 2020. Trial began
on March 2, 2022. On March 3, 2022, IAC moved for judgment on partial findings pursuant to
Federal Rule 52(c), which the Court granted, dismissing SWECS’s claims for quantum meruit,
false representation, and negligent misrepresentation. (Doc. 105). This case is now ripe for
disposition.

7

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 8 of 100

IV.

FINDINGS

Based upon a preponderance of the evidence,3 the Court makes the following findings of
fact and conclusions of law. The facts contained herein are either undisputed or the Court has
made the finding based on the credibility or believability of each witness. In doing so, the Court
considered all of the circumstances under which the witness testified, including: the relationship
of the witness to SWECS or IAC; the interest, if any, the witness has in the outcome of the case;
the witness’s appearance, demeanor, and manner of testifying while on the witness stand; the
witness’s apparent candor and fairness, or lack thereof; the reasonableness or unreasonableness
of the witness’s testimony; the opportunity of the witness to observe or acquire knowledge
concerning the facts to which he or she testified; the extent to which the witness was contradicted
or supported by other credible evidence; and whether such contradiction related to an important
factor in the case or some trivial detail. When necessary, the Court comments on the credibility
of a witness or the weight to be given a witness’s testimony. Where appropriate, any finding of
fact herein that should more appropriately be regarded as a conclusion of law shall be deemed as
such, and vice versa.
A.

Findings of Fact
The Court FINDS IAC and SWECS executed contracts, which govern all compensable

work SWECS performed. The parties’ claims arise out of two frac sand plant construction
projects, the STX and WTX facilities. The parties are bound by the express terms of their
contracts. SWECS performed work for which IAC withheld payment during the pendency of
this suit.

Proving a fact by “preponderance of the evidence” means showing that the existence of a fact is more likely than
not. Herman & MacLean v. Huddleston, 459 U.S. 375, 390 (1983). Thus, to prove a fact or claim by preponderance
of the evidence, a party must prove that it is more likely than not that its version of the facts is true. Id.
3

8

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 9 of 100

The Court FINDS SWECS submitted a written lump sum bid to IAC for SWECS’s
proposed electrical work at both STX and WTX.
The Court FINDS the Base PO for the STX Dry Plant totaled $740,248.00:

(Defendants’ Exhibit No. 17 at 19).
The Court FINDS the Base PO for the STX Wet Plant totaled $1,073,579.00:

(Defendants’ Exhibit No. 2 at 21).
The Court FINDS the Base PO for the WTX Dry Plant totaled $1,453,449.00:

(Defendants’ Exhibit No. 57 at 13).
The Court FINDS the Base PO for the WTX Wet Plant totaled $1,748,591.00:

(Defendants’ Exhibit No. 44 at 14).

9

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 10 of 100

The Court FINDS SWECS accepted the terms of the Base Work POs and the T&Cs4 and
began work for IAC. SWECS’s breach of contract claim encompasses work performed by

4

General Application. Unless otherwise expressly agreed to in writing by both parties, these terms and
conditions shall apply to all transactions between Industrial Accessories Company, Inc. (“IAC”) and
Supplier regarding the purchase and sale of products, goods and services manufactured or produced by
Supplier (the “Products”). Without limiting the generality of the foregoing, the terms and conditions set
forth herein shall apply to the Purchase Order and other documents of purchase (collectively, the Purchase
Order(s)”) which IAC may place with Supplier for Products after the date of the Purchase Order; and all
order acknowledgments (“Order Acknowledgments”) and other documents issued by Supplier to IAC after
the date of the Purchase Order with respect to the purchase of Products. These terms and conditions shall
apply to all Purchase Orders and Order Acknowledgments and other documents of Supplier; regardless of
whether or not these terms and conditions are expressly referenced in such Purchase Order or an Order
Acknowledgment and other documents issued by Supplier.
Additional and/or inconsistent Terms. Unless otherwise expressly agreed to in writing by both parties, no
inconsistent or additional term or condition in any document delivered by Supplier shall be applicable to a
transaction between IAC and Supplier, unless the terms are additional terms and are expressly accepted in
writing by IAC.
Delays or Non-deliver. If, after supplier has transmitted an Order Acknowledgment to IAC, Supplier finds
that the Products cannot be delivered within the term specified in the Purchase Order, Supplier will
promptly notify IAC and advise IAC of the revised delivery date. IAC shall then have the option (in its sole
Discretion) of terminating the Purchase Order without obligation for payment or of accepting the revised
delivery date . . . .
Option of IAC to Terminate. . . . If termination is occasioned by Supplier’s breach of any condition of the
Purchase Order, including these terms and conditions, Supplier shall not be entitled to any costs, and IAC
shall have against Supplier all remedies provided by law and equity. Termination payments by IAC, if any,
shall not be in duplication of prior payments by IAC, nor shall the sum of all such payments exceed the
total Purchase Order price. . . . Supplier must submit any claim with respect to work performed prior to
termination within ninety (90) days of the date of its receipt of IAC’s written notice of termination. . . .
Changes in Specifications or Delivery. IAC reserves the right at any time to make changes in any drawings,
descriptions, specifications, and delivery dates as to Products covered by the Purchase Order. Any
difference in price or time for performance resulting therefrom shall be equitably adjusted and the Purchase
Order schedule shall be modified in writing accordingly.
Prices and Taxes. IAC shall not be billed for any Products or services at prices higher than those stated in
the Purchase Order. . . .
Insurance and Indemnifications. Supplier shall indemnify, defend (using counsel acceptable to IAC) and
hold harmless IAC, its successors, assigns, agents, and customers, and users of goods or services covered
by the Purchase Order (“indemnitees”) from and against all claims, damages, losses and expenses,
including attorneys’ fees (collectively, the “Losses”), arising out of Supplier’s provision of the Products or
services furnished under the Purchase Order, including, without limitation, any Losses that IAC, its
successors, assigns, agents and/or Customers may incur which arise out of . . . a breach by Supplier of any
of its representations, warranties, agreements and/or covenants contained herein. . . . This indemnification
shall apply whether Supplier or IAC defends such suit or claims and whether the Losses are caused by the
sole or concurrent negligence of Supplier. . . .

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Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 11 of 100

SWECS pursuant to distinct contracts expressly supported by POs or invoices already paid as
well as invoices not yet paid between SWECS and IAC governing all work at STX and WTX,
and subject to the T&Cs, described by the following PO and invoice numbers:

Remedies. The remedies herein reserved shall be cumulative and additional to any other remedies provided
in law or equity. Supplier shall pay all damages incurred by IAC as a result of Supplier’s breach of the
Purchase Order including these terms and conditions, and any warranty, including without limitation
consequential damages. . . .
Payments. Except to the extent otherwise agreed to by the parties, IAC shall pay invoiced amounts within
sixty (60) days of the date Supplier’s correct invoice is received by IAC, provided that Products have been
received and accepted by IAC or its Customer as contemplated herein. IAC shall have the right to offset
against any payments owed by it to Supplier, any amounts that Supplier may owe to IAC . . . .
General Provisions. All terms and conditions set forth in this Article shall be applicable if the Purchase
Order is placed electronically with Supplier by IAC.
Entire Agreement. The Purchase Order and these terms and conditions contains the entire understanding of
the parties with respect to its subject matter, and supersedes all prior and contemporaneous agreements,
understandings and negotiations. No parol evidence of prior or contemporaneous agreements,
understandings or negotiations shall govern or be used to construe or modify the Purchase Order. No
modification or alteration of the Purchase Order or these terms and conditions shall be deemed effective
unless in writing and signed by the parties.
(Plaintiff’s Exhibit No. 1).

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Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 12 of 100

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.

E30975-17128
E31014-17128
E31032-17128
E31452-17128
E31482-17128
E32014-17128
E32028-17128
E32040-17128
E32191-17128
E32233-17128
E32237-17128
E32238-17128
E32239-17128
E32009-17128
E30974-17112
E31013-17112
E31286-17112
E31302-17112
E31336-17112

20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.

E31464-17112
E31473-17112
E31496-17112
E32232-17112
E32240-17112
E32460-17112
E32501-17112
E32503-17112
E32507-17112
E32662-17112
E32665-17112
E32704-17112
E32888-17112
E31456-17112
E31458-17112
E31463-17112
E31987-17112
E32016-17112
E32035-17112

39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.

E32049-17112
SC125-2
E31034-17129
E31045-17129
E31451-17129
E31484-17129
E32461-17129
E32464-17129
E32465-17129
E32466-17129
E32467-17129
E32196-17129
SC126-31
SC126-32
SC126-33
E31033-17125
E31044-17125
E31287-17125
E31335-17125

58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
74.

E31465-17125
E31483-17125
E31486-17125
E31497-17125
E31984-17125
E32462-17125
E32463-17125
E32500-17125
E32502-17125
E31340-17125
E31459-17125
E32205-17125
E32210-17125
SC126-1
SC126-30
E31474-17125
E32029-17125

The Court FINDS each PO was comprised of a bid made by SWECS to perform work at
a price, followed by IAC issuing a PO accepting the bid, setting a price for the project in the
amount of the SWECS’s bid, and incorporating IAC’s Master T&Cs as part of the contract.
Prior to starting work on the STX and WTX projects, SWECS agreed in writing that IAC’s
Master T&Cs would apply to all work performed by SWECS for IAC. The parties anticipated, at
the time they entered into the Base Work POs, Preferred Sands would likely add additional work
to the projects, including changes to the Base Work POs in the form of change orders and
entirely new scope work in the form of additional POs.
The Court FINDS SWECS and IAC entered contracts for additional work and T&M.
IAC’s Master T&Cs contemplated IAC’s requests for additional work and guaranteed
compensation to SWECS for T&M spent in performing any additional work pursuant to prior
written agreement. Further, the POs prognosticated additional T&M work, and required preapproval in writing by IAC prior to SWECS engaging in such work.

12

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 13 of 100

The Court FINDS for the STX wet plant, IAC and SWECS entered into the following 14
contracts totaling $2,310,412.10, which IAC paid in full to SWECS:
BASE WORK
Date
10/12/2017
10/30/2017

PO/Invoice #
E30975-17128
E30975-17128

12/16/2017

E30975-17128

Description
STX Wet Plant Base Bid
Change Order –
Cable Schedule Revisions
Change Order –
Cable Tray Revisions

Invoice
$1,073,579.00
$524,706.34
$203,299.26
$1,801,584.60

NEW WORK
Date
10/24/2017

PO/Invoice #
E31014-17128

10/31/2017

E31014-17128

10/31/2017

E31032-17128

12/8/2017
12/2/2017

E31452-17128
E31482-17128

2/22/2018
2/26/2018
2/26/2018
3/14/2018
3/29/2018
3/29/2018

E32014-17128
E32028-17128
E32040-17128
E32191-17128
E32233-17128
E32237-17128

3/29/2018

E32238-17128

3/29/2018

E32239-17128

Description
Wet Plant –
4160 Electrical Installation
Change Order –
4160 Excavation and Concrete
Wet Plant –
Temporary Feed
Chemical Building Fit Out
Wet Plant –
LNG Power and Controls
Plate Press Changes
HRG Modifications
FD-01 Cabling Upgrade
Chemical Building Breakers
Chemical Building Sump Pump
Chemical Building Electric Hoist and
Auger
High Pressure Gland Water Control
Valves
Chemical Building Exhaust Fan and
Louvers

Invoice
$162,190.00
$42,804.00
$21,277.00
$27,417.00
$20,364.00
$28,535.00
$23,906.00
$3,665.00
$2,806.00
$4,842.00
$20,154.00
$16,433.00
$18,139.00
$392,532.00

TIME & MATERIAL WORK
Date
PO/Invoice #
2/19/2018
E32009-17128

Description
EWR023 Crane Incident

Invoice
$116,295.50
$116,295.50

The Court FINDS for the STX dry plant, IAC and SWECS entered into the following 26
contracts totaling $3,827,079.65, of which IAC paid $3,816,579.65 to SWECS, and of which
$10,500.00 remains outstanding:
BASE WORK

Date
10/12/2017

PO/Invoice #
E30974-17112

Description
STX Dry Plant Base Bid

13

Invoice
$740,248.00

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 14 of 100

12/16/2017

E30974-17112

12/22/2017

E32451-17112

2/12/2018

E32451-17112

Change Order –
Cable Tray Revisions
Change Order –
Cable Schedule Revisions
Change Order –
Cable Schedule Revisions

($124,840.44)
$339,272.00
$203,268.69
$1,157,948.25

NEW WORK

Date
10/24/2017

PO/Invoice #
E31013-17112

10/31/2017

E31013-17112

11/3/2017

E31013-17112

10/30/2017
11/20/2017

E31286-17112
E31286-17112

1/12/2018

E31286-17112

11/17/2017
11/30/2017
12/2/2017

E31302-17112
E31336-17112
E31336-17112

12/2/2017

E31336-17112

12/12/2017
12/2/2017
12/20/2017
3/29/2018
3/29/2018
4/6/2018
4/16/2018
4/16/2018
4/17/2018
5/3/2018

E31464-17112
E31473-17112
E31496-17112
E32232-17112
E32240-17112
E32460-17112
E32501-17112
E32503-17112
E32507-17112
E32662-17112

5/11/2018
5/30/2018
6/27/2018
7/19/2018

E32665-17112
E32704-17112
E32704-17112
E32888-17112

TIME & MATERIAL WORK
PO/Invoice #
Date
E31456-17112
12/26/2017

12/26/2017

E31456-17112

Description
Dry Plant –
4160 Electrical Installation
Change Order –
4160 Excavation and Concrete
Change Order –
Material for 4160 Duct Bank
STX Primary Line
Change Order – Primary Line and
Building Distribution
Change Order – Primary Reroute
Medium Voltage
Dry Plant – Kiosk Raceways
Fiber Optic Cable
Change Order – Fiber Optic Cable
Installation
Change Order – Fiber Optic Cable
Terminations
Kiosk Power and Data
Dry Plant – LNG Power and Controls
Disconnect Retrofit
HRG Communications
Break Room Electrical Service
Main Office 400A Disconnect
Added Moisture Sensor Cables
Electronic Drain Valves
LNG Permanent Power
Removal of Dry Plant Temporary
Transformer Cable
Camera Pole Relocation
Fiber Optic Installation
Change Order – Reroute Fiber
Additional Cat 6 Installation

Invoice
$255,520.00

Description
EWR001 –
Cable Tray Ladder Supports
EWR002 –
Phase 2 Foundation Grounding

Invoice
$55,218.86

14

$61,596.00
$44,424.00
$304,550.00
$289,064.00
$24,273.00
$42,659.00
$10,297.00
$70,483.00
$12,645.00
$81,463.00
$24,003.00
$11,605.00
$19,624.00
$22,090.00
$9,522.00
$4,170.00
$17,883.00
$5,808.00
$8,138.00
$3,790.00
$138,045.00
$2,959.00
$1,630.00
$1,466,241.00

$16,729.30

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 15 of 100

12/16/2017

E31456-17112

12/26/2017

E31456-17112

12/26/2017

E31456-17112

2/19/2018
12/11/2017
2/20/2018

E31456-17112
E31458-17112
E31463-17112

2/19/2018

E31987-17112

2/23/2018
3/12/2018
6/26/2018
2/22/2018
3/6/2018
8/15/2018

E32016-17112
E32016-17112
E32016-17112
E32035-17112
E32049-17112
E32049-17112

1/10/2018

SC125-2

EWR003 –
E-House Modifications
EWR006 –
Relocating Disconnects
EWR009 –
Rotex Proximity Switch Installation
EWR004, EWR005, EWR007
MISHA Training
EWR008 –
Start-up and Commissioning
EWR038 –
Engineering Support
Core Safety January
Core Safety February
Core Safety March April
Dry Plant – Silo Loadout Charges
EWR Reconciliation dated 3/6/18
Change Order –
Deduct Crane Incident
Holiday Pay

$24,804.17
$8,978.94
$9,722.14
$79,742.76
$22,000.00
$471,593.63
$43,409.00
$27,634.00
$60,247.60
$57,422.57
$17,337.00
$369,945.93
($116,295.50)
$54,400.00
$1,202,890.40

The Court FINDS for the WTX wet plant, IAC and SWECS entered into the following
13 contracts totaling $2,154,203.89, of which IAC paid $2,127,548.00 to SWECS, and of which
$26,655.89 remains outstanding:
BASE WORK

Date
10/12/2017

PO/Invoice #
E31034-17129

Description
Preferred Sands –
WTX-1 Wet Plant

Invoice
$1,748,591.00
$1,748,591.00

NEW WORK

Date
11/6/2017
11/6/2017
12/8/2017
12/26/2017

PO/Invoice #
E31045-17129
E31045-17129
E31451-17129
E31484-17129

4/6/2018
4/6/2018
4/6/2018

E32461-17129
E32464-17129
E32465-17129

4/6/2018
4/6/2018

E32466-17129
E32467-17129

Description
1.0.1 4160 Electrical Scope of Work
1.0.2 4160 Civil Scope of Work
WTX-1 Chemical Building Fit Out
WTX Wet Plant LNG Power and
Controls
High Pressure Gland Control Valves
Pump House Fit Out (2 Pump Houses)
Chemical Building Exhaust Fans and
Louvers
Chemical Building Sump Pump
Chemical Building Hoist and Auger

15

Invoice
$155,684.00
$66,970.00
$29,233.00
$17,102.00
$16,433.00
$42,560.00
$18,139.00
$4,842.00
$20,154.00
$371,117.00

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 16 of 100

TIME & MATERIAL WORK

Date
3/12/2018
9/12/2018

PO/Invoice #
E32196-17129
SC126-31

9/12/2018
9/12/2018

SC126-32
SC126-33

Description
Armored Cat5 Expedite
EWR #8 (Temporary Power for Rake
Motor)
EWR #7 (Pump House Modifications)
EWR #6 (Cable Tray Rework for
Walkway)

Invoice
$7,840.00
$6,461.13
$7,454.35
$12,740.41
$34,495.89

The Court FINDS for the WTX dry plant, IAC and SWECS entered into the following 21
contracts totaling $4,569,853.08, of which IAC paid $4,028,463.42 to SWECS, and $541,389.66
remains outstanding:
BASE WORK

Date
10/12/2017
2/12/2018

PO/Invoice #
E31033-17125
E32452-17125

Description
WTX Dry Plant Base Bid
Change Order –
Cable Schedule Revisions

Invoice
$1,453,449.00
$467,057.00
$1,920,506.00

NEW WORK

Date
11/6/2017
11/6/2017
11/21/2017

PO/Invoice #
E31044-17125
E31044-17125
E31287-17125

12/1/2017
12/8/2017
12/12/2017
12/7/2017

E31335-17125
E31335-17125
E31465-17125
E31483-17125

12/19/2017

E31486-17125

12/20/2017
2/9/2018
4/6/2018
4/6/2018
4/16/2018
4/16/2018

E31497-17125
E31983-17125
E32462-17125
E32463-17125
E32500-17125
E32502-17125

Description
1.0.1 4160 Electrical Scope of Work
1.0.2 4160 Civil Scope of Work
WTX-1
Primary
and
Building
Distribution
WTX-1 Fiber Optic Cable
WTX-1 Fiber Optic Installation
Kiosk Power and Data
WTX Dry Plant LNG Power and
Controls
WTX Dry Plant –
Pump House Fit Out
WTX – Disconnect Retrofit
LNG Electrical Service
HRG Communications
HRG Modifications
Added Moisture Sensor Cables
Electronic Drain Valves and Pressure
Transducers

Invoice
$258,342.00
$117,359.00
$492,077.00
$11,872.00
$122,265.00
$81,463.00
$20,639.00
$194,392.00
$11,605.00
$16,033.00
$19,624.00
$23,906.00
$8,140.00
$29,509.00
$1,407,226.00

TIME & MATERIAL WORK
PO/Invoice #
Date
E31340-17125
12/5/2017
E31459-17125
12/13/2017

Description
EWR #4 (Grounding Work)
MSHA Training

16

Invoice
$29,357.79
$16,000.00

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 17 of 100

3/20/2018
3/20/2018

E32205-17125
E32205-17125

3/20/2018
3/22/2018
4/13/2018
6/26/2018
1/10/2018
9/12/2018
9/12/2018

E32205-17125
E32210-17125
E32210-17125
E32210-17125
SC126-1
SC126-30
E31474-17125

9/12/2018

E32029-17125

EWR #1 (Kiosk duct bank)
EWR #2 (Temp power for clarifier,
trailers)
EWR #3 (MCC modifications)
Core Safety January
Core Safety February
Core Safety March and April 2018
Holiday Pay
EWR #9 (Order Cable Tray)
EWR
#5
(Additional
MSHA
Grounding)
EWR #12 (Commissioning)

$51,703.35
$13,785.39
$117,695.99
$36,122.00
$74,019.90
$72,447.00
$64,600.00
$40,535.10
$7,366.75
$718,487.81
$1,242,121.08

The Court FINDS SWECS performed the work at the STX and WTX facilities pursuant
to these 74 above-described contracts between SWECS and IAC.
The Court FINDS, as anticipated when the parties entered into the Base Work POs,
Preferred Sands made modifications to its initial plans for the STX and WTX facilities during
construction. IAC, in turn, requested certain changes and increases to SWECS’s base scope
work, as documented by written change orders and the parties’ communications or
correspondence. These changes impacted SWECS’s electrical work, changing the base scope of
work and adding work not previously accounted for in the Base Work POs.
1.

Base Scope Work

The Court FINDS the change orders for base work reflected the price SWECS requested,
and IAC paid those change order amounts in full. The Base Scope POs set forth the initial target
dates for completion for SWECS’s services at the STX and WTX facilities and required that
SWECS’s work under the lump sum bid meet the target dates and proposed schedules:

17

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 18 of 100

***

***

***

Base Scope POs § 1.0.
The Court FINDS the T&Cs contain express provisions that the PO terms would not be
amended absent written agreement by IAC.

18

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 19 of 100

The Court FINDS in response to each change in the scope of the base scope work,
SWECS prepared a written proposal either increasing or decreasing the cost of labor and
materials. Once SWECS submitted a proposal to adjust the Base Work POs, IAC accepted
SWECS’s proposal and issued a written change order for SWECS to perform the changed work
at the price contained in SWECS’s proposal.
The Court FINDS the following invoice relating to base scope work performed on the
STX dry plant remains outstanding:
Date
9/12/2018

PO/Invoice #
E30974-17112

Description
Terminations for dry plant

Invoice
$10,500.00

The Court FINDS after SWECS performed the work contemplated in PO No. E3097417112, SWECS issued an Application and Certificate for Payment to IAC. (Defendants’ Exhibit
No. 17 at 89–90).
The Court FINDS the final Application and Certificate for Payment tendered for the
remainder of the Base Work POs, other than the $10,500.00 outstanding on PO No. E3097417112, reflected a zero balance:

(Defendants’ Exhibit No. 17 at 89).
The Court FINDS the contracts governing base scope work are unambiguous in that the
parties understood SWECS would not be compensated unless an approved scope of work change
occurred in writing. SWECS’s claim that it is entitled to additional compensation, other than the

19

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 20 of 100

outstanding invoice of $10,500.00, for electrical services provided is not reasonable when
viewed within the context of the bid schedule and the contracts.
2.

New Scope Work

The Court FINDS SWECS may only recover damages it incurred by performing
electrical subcontract work on the WTX and STX projects pursuant to its bid and the resulting
contracts. SWECS performed all electrical work pursuant to its contracts with IAC. The source
of the parties’ relationship is the relevant contracts.
The Court FINDS during construction, Preferred Sands engaged IAC to perform new or
additional electrical work in connection with the STX and WTX projects. The new scope work,
which was independent of base scope work, included unanticipated projects at the STX and
WTX facilities in which SWECS was given the option to partake and perform for additional
compensation. None of this work was contemplated or identified in the Base Work POs.
SWECS and IAC refer to these new contracts as “new work contracts” or “new work purchase
orders.”
The Court FINDS SWECS issued written bids to IAC governing new scope work, and
the change orders for new scope work were billed separately by SWECS. Because the new
scope work was not subsumed within the base scope work or change orders, new POs were
issued for all new scope work.
The Court FINDS SWECS is not entitled to additional compensation related to any new
scope work. Had the parties’ understanding been otherwise, there would have been some
evidence in either the form of a PO or change order provisions indicating such.

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Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 21 of 100

3.

Time and Materials

The Court FINDS all work performed by SWECS was agreed to in writing and SWECS
billed IAC on both a fixed-cost basis and on a T&M basis.
i.

Unrecoverable Amounts

The Court FINDS SWECS performed electrical services for startup and commissioning
of the WTX Dry Plant pursuant to PO No. E32029-17125. The amount invoiced by SWECS for
this work was $718,487.81. The amount paid by IAC for this work was $225,000.00. The
outstanding balance for this work is $493,487.81:
Date
9/12/2018

PO/Invoice #
E32029-17125

Description
T&M for start up and commissioning

Invoice
$493,487.81

The Court FINDS PO No. E32029-17125 was not to exceed $225,000.00 pursuant to the
plain language of the contract:

(Defendants’ Exhibit No. 78).
The Court FINDS SWECS is not entitled to additional compensation above the not-toexceed PO amount of $225,000.00.
The Court FINDS SWECS performed electrical services for upgrades to temporary
power on the WTX Dry Plant pursuant to PO No. E31474-17125. The amount invoiced by

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Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 22 of 100

SWECS for this work was $7,366.75. The amount paid by IAC for this work was $0.00.
Therefore, the outstanding balance for this work is $7,366.75:
Date
9/12/2018

PO/Invoice #
E31474-17125

Description
Invoice
N.T.E. 20k: Upgrades to temporary $7,366.75
power including grounding, switch
labeling

The Court FINDS IAC did not provide written notice of termination of PO No. E3147417125, and therefore, SWECS is not precluded from seeking compensation for this work.
The Court FINDS alleged damages for the following invoices are not recoverable
because SWECS has failed to prove at trial that any contract balance is owing and due in that the
invoices were either not agreed to in writing by IAC prior to SWECS’s performing; the POs
cannot be reopened because the POs were released upon completion of the projects; and/or the
T&M invoices were not appropriately supported by timesheets and/or backup:
Date
5/17/2018

PO/Invoice #
SC125-21

3/21/2018
5/14/2018
5/14/2018
5/17/2018
5/17/2018

SC125-7
SC126-19
SC126-20
SC126-21
SC126-22

5/17/2018

SC126-23

9/12/2018
9/12/2018
9/12/2018

SC126-27
SC126-28
SC126-29

Description
Material provided on work excluded from
SWECS scope
WTX Overtime impacts E1712/129
Added Wet Plant Triple Feed Hopper Vibrators
Temp power for wet and dry plants
Tero Technologies: Repair fiber damaged
Procure armored cable, authorized by Glenn
Smith
Material provided on work excluded from
SWECS scope
Re-terminate FC-02 with signed work tickets
Re-work FD-010
Gather material to mount proximity switch & box

Invoice
$9,648.29
$672,123.00
$43,809.00
$50,222.00
$1,879.35
$32,000.00
$49,270.71
$15,376.06
$5,502.41
$8,457.38

The Court FINDS SWECS is not entitled to additional compensation for the labor it
expended in performing work it was already required to perform under the contracts.
The Court FINDS any deviation to the contracts between IAC and SWECS required
written modification and advance written approval by IAC. The POs required additional work,

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Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 23 of 100

both Lump Sum Bid and T&M, to be agreed to in writing by IAC’s Site Manager prior to it
being performed. The Base Scope POs expressly contemplated this practice, stating:

Base Scope POs § 2.6.
The Court FINDS SWECS either did not request or otherwise did not receive IAC’s prior
written approval in relation to invoices SC126-19, SC126-20, SC126-21, SC126-22, SC126-27,
SC126-28, and SC126-29.
ii.

Recoverable Amounts

The Court FINDS in four separate instances, SWECS received email requests by IAC to
engage in additional work, which SWECS responded to via email for pre-authorization of the
additional work and compensation for T&M expended in so performing.

IAC thereafter

authorized SWECS via email to perform the additional work and to provide invoices evidencing
the T&M expenditures. Although no standard PO form was provided for any of these four
instances, IAC had established a practice with SWECS allowing for POs to be issued only after
the T&M work began. (Bill Berk Deposition 29:19–22); (Josh Evans Deposition 231:6–10).
The Court FINDS the contracts anticipated the possibility of modifying the scope of the
work that would be executed as written change orders or new POs.
The Court FINDS the parties negotiated and decided IAC would cover SWECS’s costs
for additional work outside the express POs in certain instances. IAC told SWECS it would

23

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 24 of 100

issue a written change order for this additional work once it was finished so that it would be
easier to calculate what it owed. With IAC’s promise to pay for the additional work, SWECS
continued the electrical work.
The Court FINDS SWECS provided and unloaded an additional cable tray to the WTX
Dry Plant, identified by Invoice No. SC126-30 and Extra Work Record (“EWR”) No. 9, and that
this work falls outside the scope of any express PO contract concerning the WTX Dry Plant,
whether base scope PO or change order. Although the WTX Dry Plant Base Scope PO entails
the installation of all “cable tray[s] not provided by IAC,” the emails entail an additional cable
tray to be used to expedite cable tray delivery to the WTX Dry Plant. (Defendants’ Exhibit Nos.
76; 57 at 5). The work contemplated by Invoice No. SC126-30 was outside of the base scope
and new scope POs for the WTX Dry Plant.
The Court FINDS the work identified by Invoice No. SC126-30 and EWR-9 falls outside
the scope of coverage of the Certificates for Payment. The amount invoiced by SWECS for this
work was $40,535.10. SWECS provided backup in the form of EWR-9. The amount paid by
IAC for this work was $0.00. Therefore, the outstanding balance for this work is $40,535.10:
Date
9/12/2018

PO/Invoice #
SC126-30

Description
Order MA cable tray, unload tray

Invoice
$40,535.10

The Court FINDS IAC did not provide written notice of termination of Invoice No.
SC126-30, and therefore, SWECS is not precluded from seeking compensation for this work.
The Court FINDS IAC was obligated to provide a new PO or written change order for
Invoice No. SC126-30. IAC never provided new POs or change orders for this work.
The Court FINDS SWECS performed electric work and provided temporary power to the
WTX Wet Plant, identified by Invoice No. SC126-31 and EWR-8, and that this work falls
outside the scope of any express PO contract concerning the WTX Wet Plant. The WTX Wet

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Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 25 of 100

Plant Base Scope PO specifically excluded any costs for temporary power not utilized in
SWECS’s scope of employment. (Defendants’ Exhibit No. 44 at 2). IAC’s request to provide
temporary power in this instance was for “balancing” and therefore not for SWECS’s scope of
employment under the WTX Wet Plant base scope or new scope POs. (Defendants’ Exhibit No.
55 at 1). This request classifies the work contemplated by Invoice SC126-31 as being outside of
the base scope and new scope POs for the WTX Wet Plant.
The Court FINDS the work identified by Invoice SC126-31 and EWR-8 falls outside the
scope of coverage of the Certificates for Payment. The amount invoiced by SWECS for this
work was $6,461.13. SWECS provided backup in the form of EWR-8. The amount paid by IAC
for this work was $0.00. Therefore, the outstanding balance for this work is $6,461.13:
Date
9/12/2018

PO/Invoice #
SC126-31

Description
Temp power for rake motor

Invoice
$6,461.13

The Court FINDS IAC did not provide written notice of termination of Invoice SC12631, and therefore, SWECS is not precluded from seeking compensation for this work.
The Court FINDS IAC was obligated to provide a new PO or written change order for
Invoice No. SC126-31. IAC never provided new POs or change orders for this work.
The Court FINDS SWECS removed a VFD from a water well pump house at the WTX
jobsite5 pursuant to Invoice No. SC126-32 and EWR-7, and that this work falls outside the scope
of any express PO contract, whether base scope or change order, concerning the WTX Wet Plant.
The WTX Wet Plant’s Base Scope PO and new scope POs include within their scope the
installation, wiring, and termination of VFDs, but does not delineate the removal of any installed
VFD. (Defendants’ Exhibit No. 49 at 5); (Plaintiff’s Exhibit No. 150 at 92). This removal
SWECS’s invoices and emails do not indicate which of the two plants at the WTX site were to have the VFD
removed from one of the pump houses. However, both of the plants utilized virtually the same provisions
concerning VFDs and no Certificate for Payment expressly covered VFD removal; therefore, the same facts apply to
the invoice, regardless of the plant to which the invoice balance applies.
5

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indicates the work described in Invoice SC126-32 lies outside of the base scope and new scope
POs for the WTX Wet Plant.
The Court FINDS the work identified by Invoice No. SC126-32 and EWR-7 falls outside
the scope of coverage of the Certificates for Payment. The amount invoiced by SWECS for this
work was $7,454.35. SWECS provided backup in the form of EWR-7. The amount paid by IAC
for this work was $0.00. Therefore, the outstanding balance for this work is $7,454.35:
Date
9/12/2018

PO/Invoice #
SC126-32

Description
Invoice
EWR 7: WTX remove VFD from water $7,454.35
well pump house

The Court FINDS IAC did not provide written notice of termination of Invoice SC12632, and therefore, SWECS is not precluded from seeking compensation for this work.
The Court FINDS IAC was obligated to provide a new PO or written change order for
Invoice No. SC126-32. IAC never provided new POs or change orders for this work.
The Court FINDS SWECS re-installed a cable tray previously removed for the
installation of a conveyor at the WTX Wet Plant pursuant to Invoice No. SC126-33 and EWR-6,
and that this work falls outside the scope of any express PO contract, whether base scope or
change order, concerning the WTX Wet Plant. While the Base Scope PO contract for the WTX
Wet Plant included a provision concerning the installation of a cable tray, the express PO did not
include provision for the re-installation of any cable tray.

(Defendants’ Exhibit No. 44;

Plaintiff’s Exhibit No. 150 at 82). This re-installation implicated by Invoice SC126-33 is beyond
the base scope and new scope POs for the WTX Wet Plant.
The Court FINDS the work identified by Invoice SC126-33 and EWR-6 falls outside the
scope of coverage of the Certificates for Payment. The amount invoiced by SWECS for this
work was $12,740.41. SWECS provided backup in the form of EWR-6. The amount paid by
IAC for this work was $0.00. Therefore, the outstanding balance for this work is $12,740.41:
26

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 27 of 100

Date
9/12/2018

PO/Invoice #
SC126-33

Description
Invoice
EWR 6: WTX re-install cable tray $12,740.41
removed for conveyor installation

The Court FINDS IAC did not provide written notice of termination of Invoice SC12633, and therefore, SWECS is not precluded from seeking compensation for this work.
The Court FINDS IAC was obligated to provide a new PO or written change order for
Invoice No. SC126-33. IAC never provided new POs or change orders for this work.
4.

Delay Damages

The next issue before the Court is whether SWECS is entitled to recover damages for
delay allegedly caused by IAC. SWECS seeks equitable adjustment6 for cumulative impact
including compensation for loss of labor productivity and markup in the form of overhead and
profit:
6

At trial, Defendants raised the issue of whether SWECS failed to plead the remedy of equitable adjustment. Under
Federal Rule of Civil Procedure 15(b), [w]hen issues not raised by the pleadings are tried by express or implied
consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings” and “failure so
to amend [the pleadings] does not affect the result of the trial of these issues.” Fed. R. Civ. P. 15(b). The purpose of
this rule “is to allow the course of the trial, rather than the formal pleadings, to control the outcome.” Flannery v.
Carroll, 676 F.2d 126, 131 (5th Cir. 1982). “[I]t is not often,” however, “that amendments are allowed after the
close of evidence, since the opposing party may be deprived of a fair opportunity to defend and to offer any
additional evidence.” Triad Elec. & Controls, Inc. v. Power Sys. Eng’g, Inc., 117 F.3d 180, 193–94 (5th Cir. 1997).
As a result, “trial of unpled issues by implied consent is not lightly to be inferred under Rule 15(b), [and] such
inferences are to be viewed on a case-by-case basis and in light of the notice demands of procedural due process.”
Id. at 193–94. Whether an issue has been tried by consent turns on “whether the parties recognized that the
unpleaded issue entered the case at trial, whether the evidence that supports the unpleaded issue was introduced at
trial without objection, and whether a finding of trial by consent prejudiced the opposing party’s opportunity to
respond.” Portis v. First Nat’l Bank of New Albany, 34 F.3d 325, 332 (5th Cir. 1994). A party does not consent to
try “a new issue by introducing evidence or failing to object to evidence when the evidence is relevant to pleaded
issues in the case.” Moody v. FMC Corp., 995 F.2d 63, 66 (5th Cir. 1993). Courts have “broad discretion in
determining whether or not a pretrial order should be modified or amended.” United States v. Texas, 680 F.2d 356,
370 (5th Cir. 1982). Federal Rule 16(e) permits a court to modify a pretrial order in order to prevent “manifest
injustice.” Fed R. Civ. P. 16(e). “It has been suggested that proper treatment of the pretrial order after entry
requires an appropriate balance between firmness to preserve the essential integrity of the order, and adaptability to
meet changed or newly discovered conditions or to respond to the special demands of justice.” Central Distribs.,
Inc. v. M.E.T., Inc., 403 F.2d 943, 944 (5th Cir. 1968). The United States Court of Appeals for the Fifth Circuit has
allowed amendments when “no surprise or prejudice to the opposing party results.” Quick Techs., Inc. v. Sage Grp.
PLC, 313 F.3d 338, 346 (5th Cir. 2002). Here, SWECS does not seek leave to amend its live Complaint or the
Court’s prior scheduling order. The Court concludes that prejudice would occur if SWECS were allowed to amend
its live Complaint after trial of this matter. However, both SWECS’s breach of contract claim and IAC’s
counterclaim for breach of contract are bound up in the respective rights of the parties in light of the construction of
the contracts as a whole. The Court cannot fairly be prevented from invoking a part of the contract to determine the
validity of the parties’ claims.

27

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 28 of 100

(Plaintiff’s Exhibit No. 176 at 71).

(Plaintiff’s Exhibit No. 176 at 78).
The Court FINDS the expert opinion of J. David Cotton (“Cotton”) is unreliable in that
the flawed methodology utilized by Cotton (1) ignores SWECS’s own contribution to its
productivity loss due to mismanagement of SWECS’s workforce and (2) fails to rely on actual
hours and instead uses estimated direct work hours.7

While SWECS pleads for monetary

Federal Rule of Evidence 702 provides, “A witness who is qualified as an expert by knowledge, skill, experience,
training, or education may testify in the form of an opinion or otherwise if: (a) the expert’s scientific, technical, or
other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;
(b) the testimony is based on sufficient facts or data; (c) the testimony is the product of reliable principles and
methods; and (d) the expert has reliably applied the principles and methods to the facts of the case.” Fed. R. Evid.
702. District courts are assigned a gatekeeping role to determine the admissibility of expert testimony. Daubert v.
Merrell Dow Pharms., Inc., 509 U.S. 579, 592–98 (1993). The court must find that the evidence is both relevant
and reliable before it may be admitted. Id. To do so, the court must evaluate whether the reasoning and
methodology underlying the testimony is valid and can be reliably applied to the facts of the case. Id. This requires
more than a glance at the expert’s credentials; the court must also ensure that the expert has reliably applied the
methods in question. See Moore v. Ashland Chem. Inc., 151 F.3d 269, 276 (5th Cir. 1998) (en banc). Factors to
consider when evaluating reliability include: (1) whether a theory or technique can be tested; (2) whether the theory
or technique has been subjected to peer review and publication; (3) the known or potential rate of error; (4) the
existence and maintenance of standards and controls; and (5) general acceptance of the theory in the scientific or
expert community. Daubert, 509 U.S. at 593–95. The reliability inquiry is flexible, and the judge has discretion in
determining which factors are most germane in light of the nature of the issue, the particular expertise, and the
7

28

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 29 of 100

damages related to delays attributable to IAC’s acts or omissions,8 SWECS’s expert provides a
calculation for the recovery of disruption damages and productivity loss resulting in cumulative
impact. This analysis is incorrect. Delay damages capture the time and cost of not being able to
work whereas disruption damages capture the cost of working less efficiently than planned.
SWECS does not have a pleading to support a claim for disruption damages or cumulative
impact. (Doc. 46). Cotton also fails to reference equitable adjustment—the remedy SWECS
purportedly seeks—in his opinion.
The Court FINDS SWECS, by issuing multiple Applications and Certificates for
Payment signed by SWECS’s general manager, Joe Davis, before a notary public, expressly
stating that all other amounts have been paid by the Contractor for work for which previous
Certificates for Payment were issued, released any claim for delay damages, disruption damages,
or productivity loss, associated with IAC’s payment for completed work within each PO without
a reservation of rights to seek equitable adjustment for cumulative impact:

subject of the expert’s testimony. Id. at 594–95; Kumho Tire Co. v. Carmichael, 526 U.S. 137, 142 (1999). In a
bench trial, the safeguards outlined in Daubert are less essential. Gibbs v. Gibbs, 210 F.3d 491, 500 (5th Cir. 2000).
In assessing whether an expert’s testimony is reliable, the trial court must nevertheless strive to ensure that the
expert, “whether basing testimony on professional studies or personal experience, employs in the courtroom the
same level of intellectual rigor that characterizes the practice of an expert in the relevant field.” Kumho Tire, 526
U.S. at 152.
8
(Doc. 46 at 3) (“installation of the cable trays and supports were further delayed by IAC-caused and Adelphicaused delays in building construction and mechanical equipment noted above”); id. at 4 (“All of the foregoing
factors caused extra work, delays and productivity impacts to Southwest Electrical’s work and give rise to
Southwest Electrical’s claims”); (id. at 8) (same); (id. at 6) (“installation of the cable trays and supports were further
delayed by IAC-caused and Adelphi-caused delays in building construction and mechanical equipment noted
above”); (id. at 9) (“The acts and omissions of IAC and Adelphi constitute prior, material breach of contract on IAC
and Adelphi’s part, including failure to make proper payments to Southwest Electrical, wrongful withholding of
payment from Southwest Electrical of remaining sums owed (including retainage), delay and interference with
Southwest Electrical’s work and failure to pay the increased cost of acceleration by IAC, and resulting labor cost
overrun (including overtime, loss of productivity, loss of efficiency), extended general conditions, and additional
costs.”).

29

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 30 of 100

(Defendants’ Exhibit No. 17 at 89).

(Defendants’ Exhibit No. 2 at 52).

(Defendants’ Exhibit No. 57 at 49).

30

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 31 of 100

(Defendants’ Exhibit No. 44 at 33).
The Court FINDS the following deficiencies on the part of SWECS impacted the
productivity of SWECS’s direct labor: (1) inadequate site management; (2) minimal site staffing
and inconsistent labor crews; (3) lack of planning and scheduling; and (4) failure to properly
account, allocate, and bill for work performed.
The Court FINDS the following deficiencies on the part of IAC impacted the
productivity of SWECS’s direct labor: (1) incomplete scope of work at the time the Base Work
POs were entered into by the parties that resulted in numerous changes to the fixed price scope
of work, impacted SWECS’s direct labor cost, and increased the cost of SWECS’s performance
of electrical services under the contracts; (2) mismanagement of subcontractors; (3) failure to
adequately use scheduling as a tool for work planning and coordination of subcontractors; (4)
failure to use written progress reporting consistently; and (5) complicated project management
between Preferred Sands, IAC engineering, IAC procurement, vendors, and fabricators.
The Court FINDS while IAC was responsible for some impacts to SWECS’s field labor
productivity, SWECS’s mismanagement of its work, site team and direct labor force created
impacts that substantially exceeded the impacts caused by IAC.
The Court FINDS there are no contemporaneous records that indicate the parties were
considering cumulative impact for delay, disruption, or productivity loss at the time of the
parties’ dealings and upon completion of the plants. It is a creation of SWECS’s initiative during
this litigation. Yet, Cotton’s methodology for entitlement to disruption damages lacks merit.
Moreover, there is no support for cumulative impact entitlement or delay damages on the
evidence presented in this case.

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Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 32 of 100

5.

Deficient Performance by SWECS
i.

Overbilling of Materials

The Court FINDS SWECS and IAC entered into the following POs, which IAC claims
include amounts overbilled for materials by SWECS on the STX plants:
Date
12/26/2017

PO/Invoice #
E31456-17112

12/26/2017

E31456-17112

12/16/2017

E31456-17112

12/26/2017

E31456-17112

12/26/2017

E31456-17112

2/19/2018
2/20/2018

E31456-17112
E31463-17112

03/06/2018
08/15/2018

E32049-17112

Description
EWR001 –
Cable Tray Ladder Supports
EWR002 –
Phase 2 Foundation Grounding
EWR003 –
E-House Modifications
EWR006 –
Relocating Disconnects
EWR009 –
Rotex Proximity Switch Installation
EWR004, EWR005, EWR007
EWR008 –
Start-up and Commissioning
EWR Reconciliation
Change Order – Deduct Crane Incident

Invoice
$55,218.86
$16,729.30
$24,804.17
$8,978.94
$9,722.14
$79,742.76
$471,593.63
$369,945.93

The Court FINDS IAC has failed to meet its burden to prove any overbilling of materials
for the above-described POs.
The Court FINDS SWECS and IAC entered into the following POs, which IAC claims
include amounts overbilled for materials by SWECS on the WTX plants:
Date
3/20/2018
3/20/2018

PO/Invoice #
E32205-17125
E32205-17125

3/20/2018
12/5/2017
9/12/2018

E32205-17125
E31340-17125
E32029-17125

Description
EWR001 – Kiosk duct bank
EWR002 – Temp power for clarifier,
trailers
EWR003 – MCC modifications
EWR004 – Grounding Work
EWR012 – Commissioning

Invoice
$51,703.35
$13,785.39
$117,695.99
$29,357.79
$718,487.81

The Court FINDS IAC has failed to meet its burden to prove any overbilling of materials
for the above-described POs.
The Court FINDS SWECS provided the following outstanding invoices, which IAC
claims include amounts overbilled for materials by SWECS:
32

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 33 of 100

Date
9/12/2018
9/12/2018
9/12/2018

PO/Invoice #
SC126-30
SC126-31
SC126-32

9/12/2018

SC126-33

Description
Order MA cable tray, unload tray
Temp power for rake motor
EWR 7: WTX remove VFD from water
well pump house
EWR 6: WTX re-install cable tray
removed for conveyor installation

Invoice
$40,535.10
$6,461.13
$7,454.35
$12,740.41

The Court FINDS IAC has failed to meet its burden to prove any overbilling of materials
for the above-described invoices.
The Court FINDS IAC challenges the following EWRs as containing amounts overbilled
for materials on the STX plants by SWECS: EWR004; EWR005; EWR007; and EWR008.
The Court FINDS IAC has failed to meet its burden to prove any overbilling of materials
for EWR004; EWR005; and EWR008 on the STX plants.
The Court FINDS IAC challenges the following EWRs as containing amounts overbilled
for materials on the WTX plants by SWECS: EWR001; EWR003; EWR004; EWR008;
EWR009; and EWR012.
The Court FINDS IAC has failed to meet its burden to prove any overbilling of materials
for EWR001, EWR004, EWR008, EWR009, and EWR012 on the WTX plants.
The Court FINDS SWECS’s itemized EWRs for materials did not match the amount
charged to IAC for materials at both the STX and WTX sites; thus, SWECS overbilled IAC for
materials on the following EWRs in the amount of $400.10:
EWR
EWR007 (STX)
EWR003 (WTX)

Materials
Missing Items
$18,364.41 3/C #12 TC Cable, Qty 500
$4,310.35 Sawzall, Qty 1

Itemized
$17,969.41
$4,305.25

Difference
$395.00
$5.10

The Court FINDS IAC has proved its entitlement to $400.10 in damages for overbilling
of materials on EWR007 on the STX plants and EWR003 on the WTX plants.
ii.

Overbilling of Labor

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Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 34 of 100

The Court FINDS SWECS agreed to follow all state regulations including the
requirement to supply workers in compliance with the TDLR for each plant:

(Plaintiff’s Exhibit No. 1 at 10).
The Court FINDS SWECS, as a subcontractor providing electrical services in Texas, is
regulated by the TDLR, as admitted by SWECS:

(Plaintiff’s Exhibit No. 3 at 28). The TDLR is the governmental entity which determines and
certifies the licensure status for employees at SWECS.
The Court FINDS SWECS classified a number of its employees as possessing licenses or
titles which they did not lawfully possess. Because this information is publicly available on a
state government website, of which the Court takes judicial notice, SWECS either had actual or
constructive knowledge of the title and licensure status of each of its employees.9 A given
employee’s pay rate, both straight time (“ST”)—i.e., pay at or under forty hours per week—and
overtime (“OT”)—i.e., pay over forty hours per week—was to be determined by the title and
licensure status of that employee. Generally, the more experience, the greater level the license,
and the higher the pay. If the TDLR’s website states a lower classification for a given employee
than what SWECS billed at, or if no licensure record exists for a given employee and the
employee’s labor was billed as though he possessed such a license, SWECS overbilled IAC for
“TDLR License Data Search,” TDLR, https://www.tdlr.texas.gov/LicenseSearch/LicenseSearch.asp (last updated
Apr. 11, 2022).
9

34

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 35 of 100

the employee’s labor. If the TDLR’s website does not list an active license for a given SWECS
employee, the employee should have been billed out as a “laborer.” (ET10 Mar. 3, 2022, at 4:15
P.M.).
The Court FINDS SWECS and IAC agreed to bill out labor for the four Preferred Sands
plants pursuant to SWECS’s hourly wage sheet, classified by employee title and licensure:

(Defendants’ Exhibit No. 37 at 3). Later contracts entered into between SWECS and IAC were
accompanied by the same hourly billing rates table.
The Court FINDS SWECS’s hourly billing rates were to be ST up to forty (40) hours per
week, with OT invoiced for all work over forty (40) hours per week.

(Defendants’ Exhibit No. 37 at 4).
10

“ET” refers to the electronic transcript of the trial.

35

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 36 of 100

The Court FINDS the record contains invoices, timesheets, and EWRs concerning
contractual T&M work charged to IAC by SWECS. Some EWRs were charged to IAC but
include one of the following errata: missing invoice, missing timesheet, or no enforceable
contract. Sufficient evidence in the record exists for the following EWRs challenged by IAC as
overbilled for labor: EWR004, EWR005, EWR007 and EWR008 as to STX; and EWR001,
EWR003, EWR004, and EWR012 as to WTX.
The Court FINDS for the WTX facilities, inadequate evidence exists in the record for the
Court to discern the employees, classifications, and billing rates for EWR008 and EWR009. The
Court is simply unable to determine which entries on the accompanying invoices correspond to
any given employee. Therefore, IAC has failed to present evidence to establish any overbilling
of labor claim with respect to EWR008 and EWR009 as to WTX.
The Court FINDS all positions designated by SWECS for their laborers require the
requisite TDLR license except for “Project Manager,” “Project Engineer,” “Safety Manager,”
“Start-Up Lead Tech,” “Start-Up Tech,” and “Laborer.”

“Laborer” is the classification11

receiving the lowest pay rate and is also the default for any employee at the sites for whom there
is no submitted evidence or publicly available information indicating the employee possesses a
TDLR electrician’s license.12

SWECS’s licensure designations include the following: Field Superintendent (“SU”); General Foreman (“GF”);
Foreman (“F”); Journeyman Electrician (“JW”); and Apprentice (“APP”).
12
The Court excludes licensure status entries for which either SWECS correctly billed IAC using the rates
corresponding with the employee’s licensure status, or in the case of the “Laborer” position, for which IAC has not
disputed the amount of hours charged. The burden to demonstrate overbilling lies with IAC as part of IAC’s breach
of contract counterclaim. As explained below, SWECS is not entitled to overtime compensation for any overbilled
EWRs because of SWECS’s failure to obtain preapproval from IAC for these overtime hours, and therefore, the
Court calculates the final overbilling amount by adding to the initial overbilling amount the product of the invoiced
overtime hours and the disparity between the license-adjusted straight time and overtime rates. Thus, in
mathematical terms: Overbill = ((Straight Time Rate Disparity x Straight Time Hours) + (Overtime Rate Disparity x
Overtime Hours)) + (Overtime Hours x (Overtime Rate Disparity – Straight Time Rate Disparity)).
11

36

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 37 of 100

The Court FINDS, with the exception of “Laborer,” any positions concerning the overall
functioning of the projects and their start-up do not require a TDLR license. Therefore, the
record does not support any overbilling for those employees.
The Court FINDS SWECS’s employee classifications as billed to IAC were incorrect for
the following employees at the STX site:
Employee

EWRs

ST
Hours

OT
Hours

SWECS
Class

TDLR
License

ST Rate OT Rate
Disparity Disparity

R. G. Flurry
J. A. Zuazua III
J. G. Gonzalez
B. Saenz Jr.
B. Saenz Flores
J. Rios
G. T. Rhodes
N. E. Gunn
D. D. Jenkins
E. C. Solis
E. M. Delgado
M. G. Salas
S. Saenz Jr.
A. Garza
J. F. Garza
R. Garza
J. M. Vela
E. Garza
J. L. Pena
R. Camacho
C. E. Camacho Rodriguez
D. Quintanilla
E. Cantu Jr.
E. Vargas
F. J. Arizpe
J. A. De Leon Villalobos
N. Bolanos
T. Castillo
E. Rios Jr.
M. Garza
M. Miranda
J. C. Torres

EWRs 4, 7, 8
EWRs 4, 7
EWRs 4, 7
EWRs 4, 7, 8
EWRs 5, 7
EWR 5
EWR 7
EWR 7
EWRs 7, 8
EWRs 7, 8
EWRs 7, 8
EWRs 7, 8
EWR 7
EWRs 7, 8
EWR 8
EWR 8
EWR 8
EWR 8
EWR 8
EWR 8
EWR 8
EWR 8
EWR 8
EWR 8
EWR 8
EWR 8
EWR 8
EWR 8
EWR 8
EWR 8
EWR 8
EWR 8

55
70
10
37.5
76.5
30
64
64
19
17.5
8.5
17.5
36.5
31
116
106
1
2
7
5
8
8
8
5
3
6
3
3
6
3
3
3

48
0
8
7
0
0
20
20
0
10
0
10
20
20
47
57
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

SU
JW
F
SU
JW
F
JW
JW
JW
JW
APP
JW
JW
JW
F
F
F
JW
F
JW
JW
JW
JW
JW
JW
JW
JW
JW
APP
JW
JW
JW

None
APP
APP
APP
APP
APP
None
None
APP
None
None
APP
APP
APP
APP
APP
APP
APP
None
APP
None
APP
APP
None
APP
APP
APP
APP
None
APP
APP
APP

$48.26
$3.88
$22.38
$39.22
$3.88
$22.38
$12.94
$12.94
$3.88
$12.94
$9.06
$3.88
$3.88
$3.88
$22.38
$22.38
$22.38
$3.88
$31.44
$3.88
$12.94
$3.88
$3.88
$12.94
$3.88
$3.88
$3.88
$3.88
$9.06
$3.88
$3.88
$3.88

37

$65.75
$5.83
$28.86
$52.16
$5.83
$28.86
$19.42
$19.42
$5.83
$19.42
$13.59
$5.83
$5.83
$5.83
$28.86
$28.86
$28.86
$5.83
$42.45
$5.83
$19.42
$5.83
$5.83
$19.42
$5.83
$5.83
$5.83
$5.83
$13.59
$5.83
$5.83
$5.83

Case 7:18-cv-00123-DC Document 116 Filed 05/10/22 Page 38 of 100

The Court FINDS SWECS overbilled for labor on EWR004, EWR005, EWR007, and
EWR008, at the STX facility in the amount of $23,661.03.13
The Court FINDS SWECS’s employee classifications as billed to IAC were incorrect as
to the following employees at the WTX site:
Employee

EWRs

ST
Hours

OT
Hours

SWECS
Class

TDLR
License

ST Rate OT Rate
Disparity Disparity

B. J. Fortenberry
J. K. Kuhn
G. Gonzalez
G. Gonzalez Jr.
A. H. Preza Ruano
B. Munor Jr.
R. Salinas Gracia
F. Alonso Rangel
U. H. Duran
D. W. Branham Jr.
J. W. Doyle
S. E. Morgan
G. M. Casse
J. C. Vidrine
J. K. Stephens
D. J. Touchet
L. A. Bolvito Vasquez
A. D. Flores Garcia
C. J. Siragusa Soto
I. B. Legorreta
J. R. Medina
M. L. Cole
N. Legorreta
B. M. Hebert
B. S. Gill
F. A. Lopez
U. A. Lopez Ortiz
E. M. Lucey
K. C. Mejia
R. E. Winkler III
A. Gonzalez
A. Garza
E. R. Lopez
J. H. Chamale
R. Barrientos
C. E. Garcia
C. Garcia
E. Lopez Jr.
J. Cepin Rivera

EWRs 12, 3, 4, 1
EWRs 12, 3, 4, 1
EWRs 12, 4, 1
EWR 12
EWR 12
EWR 12
EWRs 12, 3
EWR 12
EWR 12
EWR 3
EWR 3
EWR 3
EWR 3
EWRs 3, 4
EWRs 3, 1
EWR 3
EWR 3
EWRs 3, 4
EWRs 3, 1
EWR 3
EWR 3
EWR 3
EWR 3
EWR 3
EWR 3
EWR 3
EWR 3
EWR 3
EWR 3
EWR 3
EWR 3
EWR 3
EWR 3
EWR 3
EWR 3
EWR 3
EWR 3
EWR 3
EWR 3

213.5
122
78
24
0
0
8
0
20
50
72
28
32
10
74
20
12
8
48
8
8
30
0
10
10
24
24
12
0
0
12
12
7.5
12
12
12
12
12
12

251.5
124.5
32
5
5
5
47.5
5
0
25
25
35.5
48
8
18
114.5
31.5
43.5
42.5
16
28
35.5
24
36
36
24
36
12
12
12
0
0
0
0
0
0
12
12
12

SU
GF
JW
JW
JW
APP
JW
JW
JW
JW
F
F
JW
APP
JW
JW
JW
JW
JW
JW
JW
JW
JW
APP
APP
JW
JW
JW
JW
JW
JW
JW
JW
JW
JW
JW
JW
JW
JW

APP
None
APP
APP
APP
None
APP
APP
None
None
APP
None
None
None
None
None
None
APP
None
APP
APP
None
APP
None
None
APP
None
None
APP
None
APP
APP
None
None
APP
APP
APP
APP
None

$39.22
$35.32
$3.88
$3.88
$3.88
$9.06
$3.88
$3.88
$12.94
$12.94
$22.38
$31.44
$12.94
$9.06
$12.94
$12.94
$12.94
$3.88
$12.94
$3.88
$3.88
$12.94
$3.88
$9.06
$9.06
$3.88
$12.94
$12.94
$3.88
$12.94
$3.88
$3.88
$12.94
$12.94
$3.88
$3.88
$3.88
$3.88
$12.94

$52.16
$48.28
$5.83
$5.83
$5.83
$13.59
$5.83
$5.83
$19.42
$19.42
$28.86
$42.45
$19.42
$13.59
$19.42
$19.42
$19.42
$5.83
$19.42
$5.83
$5.83
$19.42
$5.83
$13.59
$13.59
$5.83
$19.42
$19.42
$5.83
$19.42
$5.83
$5.83
$19.42
$19.42
$5.83
$5.83
$5.83
$5.83
$19.42

As explained below, due to SWECS’s failure to obtain preapproval of the relevant OT work at the STX location,
SWECS was to receive compensation only at the ST rate for all employees on the pertinent EWRs.
13

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J. Rios
E. Rayos
G. Gonzalez
J. Gesmar Cuellar
Y. D. Torres Souchet
M. Mendoza Jr.
A. Gomez Sanchez
E. Pelaez Cuellar

EWR 1
EWR 1
EWRs 1, 4
EWR 1
EWR 1
EWR 1
EWR 1
EWR 1

44.5
68
13
23
30
14
10
10

0
21
10
13
13
8
0
0

F
F
APP
APP
JW
JW
JW
JW

APP
None
None
None
None
APP
APP
None

$22.38
$31.44
$9.06
$9.06
$12.94
$3.88
$3.88,
$12.94

$28.86
$42.45
$13.59
$13.59
$19.42
$5.83
$5.83
$19.42

The Court FINDS SWECS overbilled for labor on EWR001, EWR003, EWR004, and
EWR012, at the WTX facility in the amount of $67,348.64.14
iii.

Breach of Express Warranties

The Court FINDS SWECS agreed to provide its Products in such a manner as would
“conform to the specifications” of IAC, and be of good material and workmanship, free from
defect, and merchantable:

(Plaintiff’s Exhibit No. 1 at 9).
The Court FINDS SWECS failed to perform good and workmanlike services at both the
WTX and STX sites. SWECS’s installations were found to be of such deficient character that
Preferred Sands identified a multitude of grounding issues which Preferred Sands thought
necessary to remedy itself. (Defendants’ Exhibit No. 82). Preferred Sands documented a

As explained below, due to SWECS’s failure to obtain pre-approval of the relevant OT work at the WTX location,
SWECS was to receive compensation only at the ST rate for all employees on the pertinent EWRs
14

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nonexclusive number of instances in which SWECS did not perform in a workmanlike manner,
including but not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•

Utilizing improperly sized motor cable
connectors
Leaving open motor junction box hole(s)
Using inappropriate reducing washers as
motor cable connectors
Improperly terminating motors
Failing to install gasket(s) necessary to
prevent dust infiltration
Failing to utilize standard-compliant
Meyers Hubs at either facility
Improperly torquing motor disconnects
Failing to strip terminated wires
Poor workmanship on PLC cabinets wire
configurations
Severing and leaving starter bucket wires in
place where wiring modifications required
removal of wires
Poorly labeling of starter bucket
Poorly organizing wire terminations on
grizzly feeder
Improperly wiring junction box(es)
Improperly grounding cabinet(s)

•
•
•
•
•
•
•
•
•
•
•
•

Incompletely grounding and bonding
jumper for cable tray(s)
Over-allocating cables to single-cable tray
Leaving blank lighting panel cable
schedules
Poor workmanship of routing cables
Insufficiently securing cables
Leaving motor cable unprotected and
unsupported
Failing to ground and bond cabinet cables
Conducting dangerous installation of feeder
cables
Allocating multi-phase cables to samephase hookups
Failing to protect VFD from metal cabinet
shavings, creating an electrical fault which
destroyed the VFD
Failing to reinstall a protective cover over
live connectors
Poor workmanship leading to VFD Plate
Press failure

(Defendants’ Exhibit Nos. 82 at 5–10; 84).
The Court FINDS SWECS provided incompetent employees and deficient workmanship
for each of the four plants.

IAC and Preferred Sands repeatedly discussed SWECS’s

insufficiencies, as well as SWECS’s underperformance and apparent puffery in its
representations to IAC and Preferred Sands. (Defendants’ Exhibit No. 82 at 2–4). Preferred
Sands described its dissatisfaction with SWECS as being so grave that it threatened to initiate a
lawsuit against IAC and removed SWECS from its pool of available subcontractors for electrical
work, an action Preferred Sands only took against SWECS and no other subcontractor:15
What is the latest on the electrical supplier selection . . . . [I]t looks like there
might have been some email traffic about Southwest is being selected. We cannot
move forward with Southwest due to the issues experienced on our sand plants.
15

(David White Deposition 70:8–17).

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(Defendants’ Exhibit No. 81 at 1).
So let me make this clear Preferred Sands will not allow SWEC to complete any
additional new work for any of our projects at any of our locations. We have
only invoked this right with SWEC as they have not struggled under a difficult
schedule as some others have; they have fundamentally failed; nor can we fully
understand the full impacts of their failure, as shoddy electrical terminations are
difficult to track down due to the shear number of them. If you have concern
with this directive, please call.
(Defendants’ Exhibit No. 83 at 2).
The Court FINDS David White16 testified concerning his work on the STX and WTX
projects for Preferred Sands (David White Deposition 9:1–6), and the electrical implementation
issues arising out of SWECS’s work (Id. at 12:12–14), as follows:
•

Mr. White had direct contact with SWECS employees, including Josh Evans, Gilbert
Mauer, and Brandon Fortenberry, at initial weekly meetings that progressed to daily
meetings. (Id. at 13:4–25). Mr. White explained it was not common to have daily
meetings on construction sites but the projects “were significantly behind schedule,”
which “was of high concern to our capital investors and ownership.” (Id. at 14:8–12).
Preferred Sands “started noticing that what Southwest Electrical would indicate that they
would be completing was not completed.” (Id. at 14:13–15). SWECS was “behind on
their terminations, their cable pulls,” and Mr. White was alerted by day-to-day
construction managers about “issues with the electrical.” (Id. 14:15–18). Mr. White
described SWECS as having a “blasé, non-caring attitude as to what was actually
happening.” (Id. 23:4–11).

•

Thereafter, Preferred Sands had “daily meetings involving all of the key subcontractors,
of which Southwest Electrical would have been one, to get day-to-day updates” on how
the projects “were progressing on schedule in the implementation.” (Id. 14:19–23).
Preferred Sands did not have to meet daily on its other construction projects involving
different electrical subcontractors other than SWECS. (Id. 15:2–10).

•

SWECS represented to Preferred Sands that it had the capability to meet the aggressive
Completion Schedule for the projects. (Id. 21:10–16). However, Preferred Sands found

16

David White worked for Preferred Sands from 2010 to February 2019. (David White Deposition 6:1–4). Mr.
White’s career focused on managing several billion dollars’ worth of construction projects. (Id. 7:1–3). For the past
ten years, Mr. White focused his career working on frac sand construction projects. (Id. 8:17–24). Mr. White wrote
the request for proposal defining how Preferred Sands wanted the contracts implemented, reviewed the bid
proposals, made recommendations to the Chief Executive Officer, Chief Operating Officer, and Chief Finance
Officer directly, worked with legal counsel to draft contracts to be awarded, and oversaw the overall administration
of the projects. (Id. 10:1–13).

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SWECS “severely lacking in the competency of the field personnel and the competency
of the additional individuals that they had brought to the site.” (Id. 22:15–18). Preferred
Sands was “disappointed from just about the start . . . . Southwest Electrical was the
number one concern of the projects for Preferred Sands.” (Id. 22:18–22).
•

SWECS’s “field personnel had lack of onsite management, that the amount of work that
they were completing in a day was far behind what was expected, that the individuals out
there simply did not have the management directing them, nor did they have the personal
competencies in the field to be able to handle the scope of work without direct oversight
and management.” (Id. 27:19–25; 28:1).

•

With respect to delays in startup and commissioning, “Southwest Electrical was the
primary cause.” (Id. 42:15–16). Preferred Sands realized there were competency issues
in the implementation due to incorrectly wired and incorrectly labeled electrical boxes
during commissioning when they failed to work, shut down the system, burned up
equipment, and burned up motors. (Id. 48:3–13). Preferred Sands did not fully
understand the severity of the electrical issues until plant operation failed. (Id. 48:13–
16).
The Court FINDS SWECS’s own employees admitted in their depositions that SWECS

was responsible for rewirings and other reworks, as follows:
•

Brandon Fortenberry, SWECS’s superintendent for the West Texas facility, revealed that
Preferred Sands “advised [SWECS] . . . that [the wires] had been terminated incorrectly.”
(Brandon Fortenberry Deposition 81:8–14). Preferred Sands then asked SWECS to
engage in rewirings and reworks on work SWECS itself had previously completed. (Id.
80:23–81:2).

•

Gilbert “Gil” Mauer, one of SWECS’s senior superintendents and supervisor to Mr.
Fortenberry, surmised that “on a . . . project of this magnitude . . . [,] SWECS would have
some responsibility related to rework.” (Gilbert Mauer Deposition 98:17–24). When
pressed further, Mr. Mauer conceded that, as to the STX project, SWECS “had to rewire
or rework some of the prior tasks that it had performed.” (Id. 98:25–99:5).
The Court FINDS SWECS’s electrical issues were the “single largest contributing

factor[] of equipment failure, operational downtime, and safety issues raised.” (Defendants’
Exhibit No. 82 at 2). Preferred Sands, to placate the demands of those entities who depended on
the operation of the WTX and STX plants, opened the plants on a manual startup while SWECS
made efforts to repair its defective work. Preferred Sands refused to utilize SWECS on further
new scope projects, and instead found it necessary to hire third-party electrical contractors to

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correct SWECS’s faulty work.

(Id.).

Mr. White testified that third-party electrical

subcontractors came in and performed work at STX and WTX. (David White Deposition 40:3–
7).

Prior to engaging a third party, Preferred Sands had on-site electrical rewiring and

maintenance technicians working on connections due to incorrectly labeled electrical boxes and
wires and the need to completely ascertain where wires started and terminated, which was a
significant undertaking for Preferred Sands. (Id. 47:8–20).
The Court FINDS Preferred Sands identified concerns with SWECS’s performance:

(Defendants’ Exhibit No. 82 at 2).17 Mr. White testified Preferred Sands refused to allow
SWECS to work on any projects going forward due to their poor performance. (David White
Deposition 33:4–16).
The Court FINDS SWECS’s deficient performance required SWECS to engage in
several reworks across both the STX and WTX plants. Following these reworks, IAC’s pending
open invoice balance at the time was credited for SWECS’s errors in the amounts due under their
corresponding invoices in the amount of $51,714.52, as follows:
•
•
•
•
17

Replacing a damaged VFD at the WTX site ($21,491.20 credit);
Training employees on state regulations at the STX site, in error ($19,800.00 credit);
Improperly installing disconnects at the STX site ($5,708.32 credit); and
Reworking the exit kiosk raceway for the STX site ($4,715.00 credit).

“NEC” refers to the National Electric Code. (David White Deposition 66:12 –15).

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(Defendants’ Exhibit Nos. 41 at 20; 70 at 26).
The Court FINDS IAC spent $2,000,000.00 compensating Preferred Sands for SWECS’s
faulty workmanship and incompetency in performing its electrical work obligations and
supplying qualified personnel. (Defendants’ Exhibit No. 85 at 2).
iv.

Failure to Obtain Advance Written Approval for OT Work

The Court FINDS the POs also required all overtime (“OT”) be approved in writing by
IAC prior to it being performed by SWECS:

Base Scope POs § 2.5.
The Court FINDS the provision concerning pre-approval for OT work before its
commencement applies to all base scope work, new scope work, and T&M work, unless
otherwise provided for in the specific contract.
The Court FINDS SWECS claims OT work on the following contracts as disputed by
IAC as overbilled for labor: EWR004, EWR007, and EWR008 for STX; and EWR001,
EWR003, EWR004, EWR008, and EWR012 for WTX.
The Court FINDS SWECS failed to seek and acquire written approval from IAC prior to
performing the OT work on many contracts at STX and WTX. Without providing IAC an
opportunity to weigh the pecuniary costs and temporal benefits of paying SWECS the increased
labor costs related to OT prior to such work being performed, SWECS deprived IAC of the
benefit of the contractual provision relating to pre-approval for OT. Thus, SWECS is not

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entitled to compensation at the established OT rates. Accordingly, for each OT hour SWECS
documented pursuant to a T&M contract, SWECS was owed compensation only at the ST rate
and IAC has been damaged in the amount of the difference between the OT and ST rates.
The Court FINDS OT work was performed by SWECS without prior approval at each
site under the following T&M contracts: EWR004, EWR007, and EWR008 for STX; and
EWR001, EWR003, EWR004, EWR008, and EWR012 for WTX.
The Court FINDS SWECS and IAC agreed on a Completion Schedule for both the dry
and wet plants at each of the STX and WTX sites. The Base Scope POs established all four
plants were to be substantially complete by December 5, 2017 for the STX Dry Plant, November
21, 2017 for the STX Wet Plant, December 21, 2017 for the WTX Dry Plant, and December 15,
2017 for the WTX Wet Plant. The planned duration for the fixed price base contract scope of
work was approximately eight (8) weeks but the actual duration was approximately nineteen (19)
weeks.
The Court FINDS the parties agreed to initial target dates for completion of SWECS’s
services at the STX and WTX facilities and required SWECS’s lump sum bid meet the target
dates and proposed schedules:

***

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***

***

Base Scope POs § 5.0.
The Court FINDS the contract work schedule for direct workhours was 60 hours per
week and SWECS was required to work additional hours as necessary to maintain the
Completion Schedule:

***

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***

***

Base Scope POs § 3.0.
The Court FINDS SWECS was contractually required to increase its assigned manpower
when necessary to meet certain of IAC contract deadlines and objectives. SWECS contracted
with IAC upon the representation that SWECS “ha[d] the ability to increase crew size in as short
a time as 48 [hours].” (Plaintiff’s Exhibit No. 1 at 3). These concerns were communicated to
SWECS by IAC during the bidding process:
I want to share the following project concerns with you: IAC’s client may demand
that IAC finish the electrical install 1-2 weeks ahead of original schedule. As
such we need to plan for this eventuality upfront. This means we need to select a
contractor that has the ability to increase crew size in as short a time as 48 hrs.
and add a full-blown night shift at a moment’s notice. Please share with me how
Southwest would plan on Day 1 for this potential eventuality. If Southwest failed
to find and add competent manpower, it would be a disaster for all parties
involved including Southwest and IAC. The labor market in Texas is strained at
best due to the Frac Sand Plant building boom and the Hurricane clean-up. Please
share how Southwest’s management intends to handle these issues.
(Defendants’ Exhibit No. 79 at 2).
The Court FINDS SWECS estimated approximately 17,000 hours for the fixed price base
contract scope of work. SWECS further represented to IAC that the total labor estimates
provided for in the Base Scope PO bids were adjusted on the basis of manpower to meet IAC’s
schedule:

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(Plaintiff’s Exhibit No. 2 at 5).
The Court FINDS SWECS was required to seek and receive prior written approval by
IAC to extend the Completion Schedule deadlines.
The Court FINDS SWECS was obligated to provide all labor, overhead, and supervision
to meet IAC’s schedule:

Base Scope POs § 7.0.
The Court FINDS SWECS failed to maintain IAC’s Completion Schedule for the WTX
and STX plants, and failed to provide the correct manpower needed to keep and maintain these
schedules, as recognized by Preferred Sands:
I am formally writing in response to your emails requesting the use of SWC on
upcoming projects. Preferred Sands is executing our Contractual Right of Refusal
to continue the use of South West Electrical as a Sub-Contractor on our Projects.
Preferred understands that you have a commercial interest[ ] compelling you to
continue the use of South West Electrical, for STX P2, WTX Resin and OKC; and
that your pricing is subject to change based upon our refusal. IAC simply cannot
let their commercial interests, or agreements with South West Electrical take
precedence over the project [ ] needs. South West Electrical has failed from the
start of the projects to provide the correct Manpower needed to keep and maintain
the required aggressive schedules, the Manpower that they have provided is missmanaged, and the skill level of the workman is well below standard.
(Defendants’ Exhibit No. 83 at 2); (David White Deposition 34:14–18).
The Court FINDS SWECS’s site management and field labor in numbers and level of
experience were understaffed in the fixed price phase and the new work phase. Mr. White
testified that the number of personnel SWECS brought to the site was inadequate, and the

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number of field supervisors was inadequate, and the number of site supervisors was inadequate.
(David White Deposition 35:2–9). The SWECS workers “were waiting for someone to tell them
what to do. They would clump up in groups and not be performing any work, waiting for
someone to tell them what to do because they did not have the skill set or competency to just
implement it on their own.” (Id. 36:5–9).
v.

Timeliness of Invoices

The Court FINDS the POs and T&Cs required SWECS to submit invoices to IAC within
ninety (90) days of IAC’s written notice of termination of the contracts:

(Plaintiff’s Exhibit No. 1 at 8–9).
The Court FINDS IAC did not provide written notice of termination of any of the POs,
whether base scope, new scope, or T&M. Therefore, the 90-day clock for SWECS to submit its
claims was never triggered prior to the filing of the instant lawsuit.
6.

IAC’s Demand for Indemnity

The Court FINDS in May 2018, SWECS threatened to file liens against the WTX plants
based on SWECS’s claim that it had not been paid for certain extra-contractual damages that
SWECS claimed it was owed. Preferred Sands threatened to sue IAC due to SWECS’s deficient
work at the STX and WTX facilities and because of SWECS’s notices of liens. IAC later settled
the claims regarding SWECS’s deficient work by crediting Preferred Sands $2,000,000.00 from
the total contract price owed from Preferred Sands to IAC. Subsequently, IAC made written
demand for indemnity on SWECS for payment of the losses suffered by IAC, which was
rejected.

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B.

Conclusions of Law
The parties agree Texas law governs the claims in this suit. “The elements of a breach of

contract claim under Texas law are: ‘(1) the existence of a valid contract; (2) performance or
tendered performance by the plaintiff; (3) breach of the contract by the defendant; and (4)
damages sustained by the plaintiff as a result of the breach.’” Binh Hoa Le v. Exeter Fin. Corp.,
990 F.3d 410, 415 (5th Cir. 2021) (internal citations omitted); Pathfinder Oil & Gas, Inc. v.
Great W. Drilling, Ltd., 574 S.W.3d 882, 890 (Tex. 2019).
To prove “the existence of a valid contract,” the plaintiff must show inter alia that “the
parties executed and delivered the contract with the intent that it be mutual and binding.” USAA
Tex. Lloyds Co. v. Menchaca, 545 S.W.3d 479, 501 n. 21 (Tex. 2018). “A breach of contract
occurs when a party fails to perform an act that it has expressly or impliedly promised to
perform.” Case Corp. v. Hi–Class Bus. Sys., 184 S.W.3d 760, 769–70 (Tex. App.—Dallas 2005,
pet. denied). A breach of contract also occurs when one party to a contract prevents another
party to the contract from performing its side of the bargain. See Tex. Nat’l Bank v. Sandia
Mortg. Corp., 872 F.2d 692, 699 (5th Cir. 1989). The court determines as a matter of law what
the contract requires of the parties. See Meek v. Bishop Peterson & Sharp, P.C., 919 S.W.2d
805, 808 (Tex. App.—Houston [14th Dist.] 1996, writ denied).
“In construing a contract under Texas law, courts must examine and consider the entire
writing and give effect to all provisions such that none are rendered meaningless.” Int’l Turbine
Servs., Inc. v. VASP Brazilian Airlines, 278 F.3d 494, 497 (5th Cir. 2002). “When the language
is plain, it must be enforced as written.” Phillips v. Union Bankers Ins. Co., 812 S.W.2d 616,
618 (Tex. App.—Dallas 1991, no writ) (emphasis in original); see Eaton v. Courtaulds of N.
Am., 578 F.2d 87, 90 (5th Cir. 1978) (affirming that courts should, if possible, “analyze a

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contract’s meaning by its language without resort to extrinsic considerations”). “Language
should be given its plain grammatical meaning unless it definitely appears that the intention of
the parties would thereby be defeated.” Reilly v. Rangers Mgmt., Inc., 727 S.W.2d 527, 529
(Tex. 1987).18
1.

Unpaid Work

The Court now addresses whether IAC breached the contracts. SWECS claims IAC
breached the contracts by fundamentally changing the nature of the contracts and refusing to
issue new POs or change orders to cover the cost of the additional work. IAC and Preferred
Sands pushed to accelerate the schedule to begin operating the sand plants, notwithstanding the
fact that the original completion dates could not be met. IAC repeatedly revised the electrical
work causing the STX contract value to triple and the WTX contract value to double in scope.
IAC directed SWECS to proceed with additional work on the projects without issuing or
adjusting POs.
SWECS performed the work as directed by IAC. As a result, SWECS incurred costs for
the additional work; SWECS expected compensation for this additional work by way of new POs
that would be issued by IAC upon completion of the projects. SWECS became concerned that
IAC would not actually pay SWECS for this work. Negotiations about SWECS’s compensation
“The interpretation of a contract—including whether the contract is ambiguous—is a question of law.” McLane
Foodservice, Inc. v. Table Rock Rests., L.L.C., 736 F.3d 375, 377 (5th Cir. 2013); Coker v. Coker, 650 S.W.2d 391,
394 (Tex. 1983). This question is decided by “looking at the contract as a whole.” Nat’l Union Fire Ins. Co. of
Pittsburgh, Pa. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995). “A written contract is ambiguous if its
language is ‘subject to two or more reasonable interpretations’ but is not ambiguous if it is ‘so worded that it can be
given a definite or certain legal meaning.’” In re Nat’l Gypsum Co., No. 390-37213-SAF-11, 2002 WL 1359715, at
*6 (N.D. Tex. June 18, 2002) (quoting Nat’l Union Fire, 907 S.W.2d at 529); see also Litton v. Hanley, 823 S.W.2d
428, 430 (Tex. App.—Houston [1st Dist.] 1992, n.w.h.) (observing that if a contract “can be given certain definite
meaning or interpretation, then it is not ambiguous and the court will construe the contract as a matter of law”). “A
contract is not ambiguous merely because the parties to an agreement proffer conflicting interpretations of a term.”
Gonzalez v. Denning, 394 F.3d 388, 392 (5th Cir. 2004) (quoting Int’l Turbine Servs., 278 F.3d at 497). When the
terms of a contract are plain and unambiguous, extrinsic evidence is not admissible to show the parties’ intent at the
time of making the contract. R & P Enters. v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 519 (Tex. 1980).
“Parol evidence is not admissible for the purpose of creating an ambiguity.” Nat’l Union Fire, 907 S.W.2d at 520.
In this case, the parties agree the contracts are enforceable and unambiguous.
18

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were ultimately unfruitful and no additional POs or change orders were provided. SWECS seeks
to recover $105,126.55 in unpaid work on the STX project, and $1,472,157.25 in unpaid work on
the WTX project (collectively, the “Unpaid Work”).
Changes that fundamentally alter the nature of a contract are sometimes referred to as
“cardinal changes.”

Pellerin Const., Inc. v. Witco Corp., 169 F. Supp. 2d 568, 587 (E.D. La.

2001) (“A cardinal change is a ‘drastic modification beyond the scope of the contract’ that
altered the nature of the thing to be constructed.”). “The cardinal change doctrine is a creature of
the body of law which has arisen in the context of disputes over government contracts,” Atl. Dry
Dock Corp. v. United States, 773 F. Supp. 335, 339 (M.D. Fla. 1991), but also applies to private
contracts. Galin Corp. v. MCI Telecomms. Corp., No. H–88–4131, 1992 WL 560909, at *10–14
(S.D. Tex. July 21, 1992) (finding in a private contract dispute that a change order “did not
constitute a ‘cardinal change’ which altered the . . . essence of the contract”).
“[W]hen an owner or its agent has abused its power [to make changes to a construction
contract], the theory of cardinal change allows a contractor in a losing contract to bring an action
for material breach of contract, alleging that the ordered changes exceed the parties’ reasonable
expectations.” Pellerin, 169 F. Supp. 2d at 587. In this case, SWECS contends IAC abused its
power by making cardinal changes to the scope of work under the contracts for electrical
services without issuing new POs or change orders covering the additional work.
The United States Court of Appeals for the Fifth Circuit has held that a change order is
not a cardinal change to the nature of a contractor’s work where it does not change to “the
general nature of the work” and is also “not a material change to the plans and specifications.”
Interstate Contracting Corp. v. City of Dallas, 407 F.3d 708, 724–25 (5th Cir. 2005). Texas
appellate courts have further refined this sentiment by exclaiming that change orders creating

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“proportionally small amounts of extra work” are not material changes but change orders
creating work that is “new and different from that covered by the agreement” are material
changes not subject to unit price terms. See B.F. & C.M. Davis Co. v. W.E. Callaghan Constr.
Co., 298 S.W. 273, 279–80 (Tex. Comm’n App. 1927).
Express contracts govern the subject matter of the additional work. The contracts made
provision for the electrical work requested by IAC and performed by SWECS. Thus, SWECS,
as the party seeking to recover damages, must look to the contracts for compensation. The
contracts contain provisions and procedures for change orders applicable to claims for
adjustment in the contract price as a result of additions, deletions, or revisions to the contract
work requested by IAC. The procedure for change orders in the contracts applies to SWECS’s
claims for Unpaid Work. IAC breached the contracts by failing to issue POs or change orders
and pay several invoices submitted for additional work that was necessary to complete the
projects.
“Extra work” in construction cases has been defined by some Texas courts as “work
arising outside and independent of the contract, something not required in its performance.” See,
e.g., Brown–McKee, Inc. v. Western Beef, Inc., 538 S.W.2d 840, 844 (Tex. Civ. App.—Amarillo
1976, writ ref’d n.r.e.); City of Houston v. L.J. Fuller, Inc., 311 S.W.2d 285, 290 (Tex. Civ.
App.—Houston 1958, no writ). “Additional work,” on the other hand, is work that is necessary
or “required in the performance of the contract and without which it could not be carried out.”
L.J. Fuller, 311 S.W.2d at 290. Ultimately, the determination of whether work performed or
materials supplied fall within the scope of an express contract is determined by application of
basic rules of contract construction to determine the parties’ intentions as expressed in the
contract. Id. at 289.

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The Court construes the requested change orders and/or new POs as requests for
additional compensation under the contracts.

SWECS is entitled to recover for breach of

contract in that IAC’s ordered changes exceeded the parties’ reasonable expectations for the
following work:
Date
9/12/2018
9/12/2018

PO/Invoice #
E30974-17112
E31474-17125

9/12/2018
9/12/2018
9/12/2018

SC126-30
SC126-31
SC126-32

9/12/2018

SC126-33

Description
Terminations for dry plant
N.T.E. 20k: Upgrades to temporary
power including grounding, switch
labeling
Order MA cable tray, unload tray
Temp power for rake motor
EWR 7: WTX remove VFD from water
well pump house
EWR 6: WTX re-install cable tray
removed for conveyor installation

Invoice
$10,500.00
$7,366.75

$40,535.10
$6,461.13
$7,454.35
$12,740.41

IAC was required to provide change orders and/or new POs for this additional work,
which IAC requested SWECS to perform and the parties agreed upon in the relevant
correspondence. IAC breached the contracts by failing to compensate SWECS for the additional
work arising from PO Nos. E30974-17112 and E31474-17125, and Invoice Nos. SC126-30,
SC126-31, SC126-32, and SC126-33, as approved by IAC through the respective
correspondence.19 After reviewing the contracts, the Court concludes the additional work does
not qualify as “extra work” as that term is defined by Texas courts; rather, this is work that is
provided for in the contracts as evidenced by the parties’ emails. Because IAC changed the
nature of the work that SWECS was required to perform under the contracts, IAC was obligated
to issue new POs or change orders for this additional work.

19

Evidence indicating the existence of a contract can be present in inter alia a formal written agreement, or instead a
set of emails which in the aggregate satisfy each of the requirements for valid, enforceable agreements. See Shirvani
v. Celebrity Healthcare Mgmt., LLC, No. 05-19-00192-CV, 2020 WL 1887894, at *5 (Tex. App.—Dallas Apr. 16,
2020, pet. denied) (mem. op.); see also Copano Energy, LLC v. Bujnoch, 593 S.W.3d 721, 729–30 (Tex. 2020)
(applying contract principles to emails).

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However, SWECS is not entitled to additional compensation for doing work it was
already required to do under the contracts. Accordingly, SWECS cannot establish its breach of
contract claim as to Invoice Nos. SC125-21, SC125-7, SC126-19, SC126-20, SC126-21, SC12622, SC126-23, SC126-27, SC126-28, and SC126-29.
2.

Delay Damages

The plants were plagued by delays and problems, some of which were attributable to
IAC’s mismanagement of its subcontractors and design changes to both STX and WTX. To
complicate matters, SWECS encountered problems with its own crews during the projects. Due
to these delays and inefficiencies, SWECS seeks to recover in productivity loss $1,773,208.40 on
the STX project, and $1,331,646.04 on the WTX project (the “Delay Damages”). The Court
now determines which party to the contracts bore the risk of losses caused by any delays.
The Delay Damages sought by SWECS are in addition to the amounts contracted-for and
agreed to by IAC and SWECS. For the work performed (including base work, change work and
new work, but exclusive of the Unpaid Work addressed above), SWECS proposed a price for its
work to IAC, accepted IAC’s POs containing a contract value of the bid price, issued invoices to
IAC for payment of the bid price, and submitted sworn applications and Certificates for
Payment, verifying that the bid price was the correct compensation for its work. IAC and
SWECS have not executed a written contract whereby IAC agreed to pay Delay Damages to
SWECS for additional direct labor costs resulting from productivity loss, inefficiencies, and
delays relating to work for which SWECS previously certified IAC fully paid all amounts due.
The T&Cs, POs, and the relevant invoices govern the scope and terms of the relationship
between IAC and SWECS. SWECS cannot recover for damages precluded by the parties’
contracts. In the absence of contractual provision to the contrary, a contractor may recover

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damages for losses due to delay and hindrance of work if it proves: (1) that its work was delayed
or hindered; (2) that it suffered damages because of the delay or hindrance; and (3) that the other
contracting party was responsible for the act or omission that caused the delay or hindrance. See
Anderson Dev. Corp. v. Coastal States, Etc., 543 S.W.2d 402 (Tex. Civ. App.—Houston [14th
Dist.] 1976, writ ref’d n.r.e.). However, if a contract addresses delay, a party can recover only
the contractually prescribed remedy. City of Houston v. R.F. Ball Constr. Co., Inc., 570 S.W.2d
75, 77 (Tex. Civ. App.—Houston [14th Dist.] 1978, writ ref’d n.r.e.).
Generally, a no-damages-for-delay clause is enforceable at law, subject to the following
exceptions: (1) where the delay was not contemplated by the parties to the contract; (2) where
delay is caused by bad faith or active interference; and (3) if the delay is tantamount to an
abandonment of the contract. See E.C. Ernst, Inc. v. Manhattan Constr. Co. of Texas, 551 F.2d
1026, 1029 (5th Cir. 1977). In this case, there is no evidence that IAC intentionally interfered
with the contracts—the evidence shows IAC worked with SWECS to accomplish the purposes of
the contracts. Further, in light of the various contractual agreements providing for equitable
adjustment based on pricing criteria in the contracts, any delay damages were manifestly
foreseeable. There is no evidence IAC acted in bad faith and no party argues for abandonment of
the contracts. Accordingly, the Court finds that no exception to the general rule enforcing
contractual limitations on delay damages applies in this case.
In U.S. for Use & Ben. of Straus Sys., Inc. v. Associated Indem. Co., the contractual
provision in question limited the subcontractor’s remedy for delay to an extension of the project
due date but did not expressly bar common law delay damages. 969 F.2d 83, 85 (5th Cir. 1992).
In holding that common law delay damages could not be recovered under the terms of the
parties’ contract, the Fifth Circuit explained:

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Contract provisions indicating that the delay was within the contemplation of the
Parties have been found to be sufficient to preclude recovery of damages for delay
in a construction contract, City of Houston v. R.F. Ball Constr. Co., Inc., 570
S.W.2d 75, 77 (Tex. Civ. App.—Houston [14th Dist.] 1978, writ ref'd n.r.e.).
Parties to a contract might foresee or consider the possibility of delay and
contractually provide for a remedy to be applied upon such occurrence. Id. It is
not necessary that exclusion of delay damages be express. Id. A provision in the
contract for an extension of time in case of delay caused by the contractor has
been held to afford the subcontractor an exclusive remedy, precluding the
recovery of damages from the contractor. Ericksen v. Edmonds School Dist. No.
15, Snohomish County, 125 P.2d 275, 13 Wash.2d 398 (Wash., 1942); see
Burgess Constr. Co. v. M Morrin & Son Co., Inc., 526 F.2d 108, 115 (10th
Cir.1975). See also United States, to Use of Brown v. Miller–Davis Co., 61 F.
Supp. 89, 90 (D.Conn.1945). (provisions in the principal contract for extension of
the completion date were held a bar to the subcontractors recovery against the
general contractor for delay).
Id. In that case, the parties agreed in their contract that the exclusive remedy for delay was a
time extension, and the Fifth Circuit enforced the parties’ agreement accordingly. Id.
In City of Houston v. R. F. Ball Const. Co., Inc., a subcontractor attempted to recover
damages for delay or hindrance caused by the contractor on a large construction project. 570
S.W.2d at 77. The contract between the subcontractor and contractor stated that any additional
compensation owed to the subcontractor as a result of delay or hindrances must be agreed to and
approved in writing during the project. The court determined that this provision prohibited the
subcontractor from recovering common law delay damages. Id.
Under the contracts in this case, SWECS bore the risk for delays and inefficiencies
resulting in productivity loss. A party to a Texas construction project is liable for breach of
contract when it provides inadequate construction plans and the contract allocates to that party
the risk of inaccurate plans. See Interstate Contracting Corp. v. City of Dallas, 407 F.3d 708,
720–21 (5th Cir. 2005). Here, IAC provided the construction plans for the electrical work to
SWECS. The evidence is undisputed that these construction plans changed over time due to
design changes to the plants.

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The default rule in Texas, dating back to a case interpreting an 1899 contract to construct
a building in San Antonio, Texas, is that the party performing the work bears the risk that it will
end up being more difficult than anticipated unless the contract shifts that risk to the buyer of the
services. Lonergan v. San Antonio Loan & Tr. Co., 101 Tex. 63, 104 S.W. 1061, 1065–66
(1907); see also Interstate Contracting, 407 F.3d at 720–21 (“In order for an owner to breach a
contract by supplying inadequate plans to a contractor, [Texas law] require[s] that the contract
evidence an intent to shift the burden of risk of inadequate plans to the owner.”). This default
rule flows from the basic contract principle that “where one agrees to do, for a fixed sum, a thing
possible to be performed, he will not be excused or become entitled to additional compensation,
because unforeseen difficulties are encountered.” El Paso Field Servs., L.P. v. MasTec N. Am.,
Inc., 389 S.W.3d 802, 811 (Tex. 2012) (internal citation omitted). “If a factory agrees to
manufacture 100 widgets for $500, it cannot later charge $600 if it ends up taking more labor or
materials to produce the widgets than expected.” D2 Excavating, Inc. v. Thompson Thrift
Constr., Inc., 973 F.3d 430, 434 (5th Cir. 2020).

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The default rule applies here because the contracts do not allocate to IAC the risk of
delays or productivity losses. If anything, the contracts place the risk on SWECS. Each contract
contemplated changes to the scope of work and delays which may occur during the course of the
project and provided remedies if such a change occurred. If IAC made a change that caused a
delay or difference in price, the parties agreed for SWECS’s exclusive remedy to be a written,
equitable adjustment to the purchase price and schedule:

(Plaintiff’s Exhibit No. 1).
The equitable adjustment pursuant to the T&Cs is designed to keep the contractor whole
and to keep the parties to the contract in the same position relative to one another as they were in
after as before the changes. Therefore, the measure of equitable adjustment for increased work is
the difference between the reasonable cost of the work originally required by the contract and the
actual reasonable cost to the contractor of performing the changed work plus a reasonable
amount of overhead and profit. Accordingly, an equitable adjustment is defined to include the
reasonable cost differential plus a reasonable amount of overhead and profit, or in mathematical
terms: Equitable Adjustment = Cost(Performed Work) – Cost(Original Estimate) + Overhead +
Profit.
SWECS’s contracts with IAC contemplated that delay could occur and provided for a
remedy if a delay should occur. Specifically, if the delay occurred because IAC changed the

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scope of work, “any difference in price or time for performance resulting from [such change]
shall be equitably adjusted and the Purchase Order schedule shall be modified in writing
accordingly.” (Plaintiff’s Exhibit No. 1). Except for this written, equitable adjustment, the
parties agreed that “SWECS shall have no recourse to IAC” for any delay or hindrance caused by
changes to the relevant scope of work:

Base Scope POs § 7.0.
Additionally, the parties agreed SWECS shall not charge IAC a purchase price higher
than the price listed in the PO, and SWECS could not bill IAC for extra-contractual amounts; the
governing T&Cs expressly limited charges to IAC for SWECS’s Products to the amount stated in
the respective PO:

(Plaintiff’s Exhibit No. 1 at 9). Next, the POs contain multiple provisions whereby SWECS and
IAC agreed that all modifications to a PO must be in writing and signed by both parties. (Id. at
“Additional and/or Inconsistent Terms,” “Issuance of Purchase Order,” and “Entire
Agreement.”).

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In the event of a delay or hindrance, the contracts granted IAC the option to revise the
contract schedule, terminate the contract, and/or seek actual and consequential damages against
SWECS. (Id. at “Delays or Non-Deliver,” and “Remedies”). The parties’ contracts expressly do
not grant SWECS the same remedies as IAC in the event of a delay or hindrance. (Id.). In sum,
the parties expressly agreed SWECS could not bill IAC for products, goods, or services,
inclusive of pricing, that fell outside the scope of the parties’ contracts. Further, the parties
expressly contemplated that only one party—IAC—could seek consequential damages.
Thus, the parties’ agreements placed the risk upon SWECS. “Someone has to bear the
loss of additional costs,” El Paso Field Servs., 389 S.W.3d at 811, and the parties’ contracts did
not shift that risk to IAC. Of course, a valid modification of the contract via a change order
could render IAC liable. But change orders, like any modification, must satisfy the normal
requirements of a contract: “a meeting of the minds supported by consideration.” Hathaway v.
Gen. Mills, Inc., 711 S.W.2d 227, 228 (Tex. 1986); see also INET, 819 F.3d at 252 (“[A]ny
change order to adjust for the defects discovered by INET required the assent of both parties.”).
Critically, “[a] promise to fulfill a pre-existing obligation cannot serve as new
consideration for an amendment to a contract.” In re OSG Ship Mgmt., 514 S.W.3d 331, 338
(Tex. App.—Houston [14th Dist.] 2016, no pet.). If the contract had required less electrical
work than the parties expected, IAC would not be able to get a refund on the contract price it
agreed to pay. Likewise, when the work turned out to involve more electrical work than the
parties expected, SWECS cannot recover more than the contract price.
The relevant contracts exclude any consequential damages in favor of SWECS. Further,
SWECS did not include a reservation of rights to cumulative impact damages from delay or
disruption in its proposals relating to direct labor. The only contract in which SWECS reserved

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the right to claim for impact and consequential costs was for a proposed change order on the
STX project, PO No. E31013-17112, relating solely to materials and not direct labor:
This quote covers direct costs only and we reserve the right to claim for impact
and consequential costs.
(Defendants’ Exhibit No. 90 at 843). SWECS later released this reserved claim by representing
that IAC had paid all amounts due.
By failing to reserve the right to seek equitable adjustment for delays, disruptions, or
other productivity loss, SWECS relinquished its right to do so now through litigation. U.S. v.
William Cramp & Sons Ship & Engine Bldg. Co., 206 U.S. 118, 128 (1907) (“If parties intend to
leave some things open and unsettled, their intent so to do should be made manifest.”). SWECS
knew it had a right to assert delay or disruption damages through an equitable adjustment and
was aware of how to reserve this right, but it chose not to do so. SWECS entered freely into the
contracts with IAC, and this Court shall enforce those contracts as written.
IAC and SWECS contemplated delays could occur when they entered their contracts.
They agreed that the sole remedy for a delay caused by a change to the scope of work would be
an equitable adjustment, reduced to writing and agreed to by the parties, which would adjust the
PO price and schedule to account for the change in the scope of work. Accordingly, SWECS
may not recover common law delay damages for productivity loss or cumulative impact.
Even if SWECS could show its entitlement to extra-contractual damages, SWECS has
failed to prove each act or omission of delay or hindrance with specificity. See Carrothers
Const. Co., Inc. v. City of Dallas, 100 F.3d 954 (5th Cir. 1996). It is not enough to show that
delay occurred—the plaintiff must clearly demonstrate each delay or hindrance and show that the
delay or hindrance was due to the fault of the defendant. Aetna Cas. & Sur. Co. v. Chapel Hill
Indep. Sch. Dist., 860 S.W.2d 667, 671 (Tex. App.—Tyler 1993, no writ); see also City of

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Beaumont v. Excavators & Constructors, Inc., 870 S.W.2d 123, 132 (Tex. App.—Beaumont
1993, writ denied) (“Plaintiff in an alleged breach of a construction contract must show the
nature and extent of the various delays for which damages are claimed. Plaintiff must show and
connect these delays and hindrances to some act of omission or commission or breach on the
individual defendant’s part. The damages, if any, caused by each defendant must be proved.”).
SWECS has failed to prove its claim for delay or disruption damages related to
productivity loss and cumulative impact with specificity. The mere expression of an estimate as
to the amount of delay or disruption loss by SWECS’s expert witness does not establish an injury
or provide a sufficient basis for making a reasonably correct approximation of damages. In
particular, the Court finds that the expert testimony relied on by SWECS is not reliable or
credible.20

Cotton uses inaccurate and fictitious numbers in his productivity loss analysis.

Cotton also completely speculates on SWECS’s contribution to its own productivity loss. First,
Cotton did not use accurate and practical budget hours. Instead of actual hours for either
changed or new work or base contract work, Cotton used estimates. Second, Cotton claims that
SWECS bore no responsibility for any of the additional labor hours SWECS claimed to have
incurred.

Cotton ignored extensive and pervasive SWECS mismanagement (including

understaffing site management team, lack of planning, and lack of scheduling) that caused much
of SWECS’s productivity loss due to direct work hour overruns.
Because Cotton speculates on both the labor budget and SWECS’s proportionate
responsibility, his opinion is unreliable. SWECS’s delay damages and/or disruption damages

20

Because this case was tried to the Court, it allowed all proffered experts to testify during the trial over both
parties’ objections. The Court permitted both parties to cross-examine the experts and challenge their opinions
during trial rather than conduct separate time-consuming reliability hearings. The Court similarly admitted all
proffered experts’ reports and related expert evidence without first determining their relevance, reliability, or
admissibility. Additionally, in reviewing the reports and other materials after trial, the Court only considered the
facts and data that “experts in the particular field would reasonably rely on . . . in forming an opinion on the
subject.” Fed. R. Evid. 703; see also Daubert, 509 U.S. at 595.

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calculations are based on mere estimates, which do not satisfy SWECS’s burden of proof. The
Court is unable to ascertain with any degree of certainty from Cotton’s testimony the actual
hours worked by SWECS or SWECS’s proportionate responsibility for productivity loss. Absent
such testimony, the Court concludes that the opinions expressed by Cotton are not sufficiently
reliable. The Court, therefore, disregards Cotton’s opinions.
Finally, both SWECS and IAC contributed to the delay; therefore, neither can recover
damages for the delay without proof of clear apportionment of the delay and expense attributable
to each party. Because the delays are concurrent, and SWECS’s expert fails to attribute any fault
to SWECS for the delays, disruptions, inefficiencies, and productivity loss resulting from the
projects, SWECS has failed to establish its delay separate from that attributable to IAC, and the
Court shall deny recovery. Wright v. King, 17 S.W.2d 98, 102 (Tex. Civ. App.—El Paso 1929,
writ ref’d) (“[W]here the delay was mutual as to the owner and contractor, . . . the court states
the statutory rule to the effect that the courts will not attempt to apportion such delays even
where the causes for such delays have been mutual, but will refuse to enforce the penalty.”);
Summit Glob. Contractors, Inc. v. Enbridge Energy, Ltd. P’ship, 594 S.W.3d 693, 696 (Tex.
App.—Houston [14th Dist.] 2019, no pet.) (affirming trial court’s denial of delay damages
because the “trial court could have inferred that Summit was not capable of handling a job of this
magnitude given the size of its facilities and its workforce.”).
3.

IAC’s Counterclaims for Breach of Contract, Offset, and Indemnity

The Court now turns to whether IAC can recover against SWECS on its counterclaims,
and remarks that “[w]hen sorrows come, they come not as single spies, but in battalions.” Santos
v. NASA Fed. Credit Union, No. RWT 07-1588, 2008 WL 11509709, at *1 (D. Md. Mar. 13,
2008) (quoting WILLIAM SHAKESPEARE, HAMLET act 4, sc. 5). Based on the evidence presented

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at trial, the Court concludes SWECS breached the contracts by supplying incompetent and
insufficiently qualified laborers to perform electrical work on the STX and WTX plants.
SWECS agreed in the POs and T&Cs to provide only laborers who are qualified pursuant to the
laws and regulations of the State of Texas, as prescribed by the TDLR. Such conditions to the
contractor’s labor force have been upheld in construction contracts. See Hazlewood v. Lafavers,
394 S.W.3d 620, 624 (Tex. App.—El Paso 2012, pet. denied) (interpreting a construction
contract).
It is uncontroverted that the four main projects were rife with delays, disruptions, and
exorbitant expenses from both parties.

SWECS’s first material breach occurred when it

employed laborers who were unqualified to perform the jobs with which they were tasked. The
governing POs required SWECS to supply sufficient manpower to complete the electrical work
on both projects. One such provision ensured that SWECS’s provision of apprentices, foremen,
and other supervisors, would comply with Texas state laws and regulations, including those
pronounced by the TDLR. Joseph “Joe” Davis, SWECS’s general manager in 2017, additionally
testified that, prior to employing an individual in an electrician’s position requiring a certain
license by state law, SWECS would “ensure compliance with the TD[L]R regulations” and
“verify[] their license . . . [as] part of the application process.” (Joe Davis Deposition 29:15–
30:10). SWECS unequivocally failed to so do.
Instead, SWECS allocated to the plants, workers unqualified as journeymen, foremen, or
otherwise. Josh Evans, one of SWECS’s Master Electricians assigned to the projects, himself
testified that, while an individual possessing the lowest licensure classification of “apprentice”
could make design-based determinations for the sites, it would be undesirable for an unlicensed
laborer to do the same. (ET Mar. 2, 2022, at 4:00 P.M.). Yet, many workers lacked any license.

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Mr. White testified that Preferred Sands felt right away that SWECS did not have
“adequate amount of personnel, adequate amount of supervision or leadership, and that the
competency was not that . . . of other companies on [Preferred Sands’] other projects.” (David
White Deposition 28:9–13). Mr. White explained that SWECS was “ill-equipped to handle a
project of this magnitude and complexity.” (Id. 28:20–22).
Additionally, SWECS (i) neglected to keep accurate and complete records pertaining to
the hours worked or who or what materials were utilized, (ii) failed to properly label wires and
boxes, (iii) allowed for damage to occur to the VFDs at the WTX site, and (iv) failed to perform
its obligations without reworks by either SWECS or third-party vendors. These failures, caused
by SWECS’s provision of an unqualified labor force, constitute a breach of SWECS’s
contractual obligations and promises. Therefore, the Court concludes SWECS breached the
contracts with IAC by providing incompetent supervision and labor.
Another breach occurred when SWECS failed to meet IAC’s substantial completion
deadlines. SWECS in each PO agreed to work as many hours as would be necessary to maintain
the deadlines established by IAC in its Completion Schedules, tailored specifically to each of the
individual base scope sites. Thus, SWECS represented that it had the capacity to meet the
agreed-upon deadlines, as well as the ability to generate and provide any additional capacity
were such necessary to do so. At all four plants, rampant delays caused in part by SWECS’s
incompetent staffing and improper supervision led to SWECS falling far behind the Completion
Schedules. SWECS was indubitably overextended.
Mr. White testified that Preferred Sands “attributed 1.7 million dollars, the failure to
actually meet that schedule, directly to electrical.” (David White Deposition 24:20–25). Mr.
White explained that towards the end of the projects, IAC and Preferred Sands would have daily

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meetings with SWECS because “every single day they failed to meet their own commitments.”
(Id. 29:15–17). The Court, after examining the evidence before it, concludes SWECS committed
a breach of contract in failing to achieve the Completion Schedule substantial completion
deadlines as it had represented and promised to IAC it so could.
Third, IAC’s evidence in support of its breach of contract claim is more than sufficient to
establish that SWECS breached its agreement to perform the work in a workmanlike manner. As
the injured party, IAC was only required to produce the best evidence available to afford a
sufficient basis for the Court to determine its loss. Vance v. My Apt. Steak House of San Antonio,
Inc., 677 S.W.2d 480, 484 (Tex. 1984). The Court is satisfied that IAC has met its burden in this
regard. The T&Cs provided that SWECS expressly warranted that its Products would conform
to IAC’s specifications and would be of good material and workmanship, and free from defects.
These express contractual warranties are presumed valid. Crimson Expl. Operating., Inc. v. BPX
Operating Co., No. 14-20-00070-CV, 2021 WL 786541, at *2–*3 (Tex. App.—Houston [14th
Dist.] Mar. 2, 2021, pet. denied) (mem. op.).
The failure to perform in a good or workmanlike manner can be illustrated by evidence
that the contractor did not perform work in accordance with “plans and specifications.” See
Jacobini v. Zimmerman, 487 S.W.2d 249, 250 (Tex. Civ. App.—Fort Worth 1972, no writ).
SWECS therefore was to install the electrical facilities and components for the four plants in
accordance with the specifications and plans affirmed by the governing POs, and to do so in a
way that would render the plants merchantable and free from defect.
SWECS made numerous errors at both WTX and STX, many of which the Court
enumerated in its findings of fact. In fact, some errors were so grave that Preferred Sands
observed that they posed an elevated threat of danger to human health and safety; others required

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alterations and patchwork to correct the mistakes. These errors caused damage to not only the
plants themselves, but also augmented the costs for IAC and Preferred Sands in correcting
SWECS’s errors and delayed Preferred Sands’ operation of the plants. It can therefore only be
deduced that construction faults of this sort run counter to the plans and specifications IAC
agreed to with SWECS prior to commencement of the projects. Accordingly, the Court holds
SWECS breached its contracts with IAC by failing to perform electrical work on the STX and
WTX sites in a good or workmanlike manner.
The Court concludes SWECS further breached the provisions of the POs by performing
additional work prior to receiving written approval to do so by IAC. The POs and T&Cs
expressly mandated that SWECS receive approval by IAC prior to engaging in any additional
work. Where SWECS was obligated to merely request, even via email, the performance of
additional work beyond the original base scope and new scope POs, SWECS failed to so comply,
with the exception of the recoverable Unpaid Work as described above.
Considering the evidence before the Court at the trial, the Court detects several instances
wherein SWECS performed work not expressly contemplated by any prior contract, and
thereafter still requested compensation. While four of SWECS’s unpaid invoices were indeed
the product of email-based agreements between SWECS and IAC, which constitute written preapproval, seven other instances had no prior approval by IAC. The evidence adduced at and
before trial indicates that a string of emails support only four express, enforceable contracts for
additional work; the seven remaining unpaid invoices do not. IAC required, and SWECS agreed
to so do, SWECS to seek approval before completing any additional work beyond the scope of
any existing POs. To this end, SWECS breached. IAC therefore has demonstrated that it is

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entitled to judgment in favor of its breach of contract claim on the ground that SWECS
performed additional work without prior written approval by IAC.
The Court further holds SWECS breached the governing POs by overbilling IAC for
labor hours. SWECS up-charged and misrepresented to IAC the qualifications and licensures of
its laborers. SWECS agreed to provide competent employees as well as to supply IAC with
invoices that were correct and accurate, including the classification and licensure status of its
laborers. SWECS breached this agreement.
The TDLR operates pursuant to the Texas Electrical Safety and Licensing Act
(“TESLA”), which is codified in the Texas Occupations Code (“Occupations Code”) as Chapter
1305.21 Section 1305.151 of the Occupations Code “prohibits a person or business from offering
to perform electrical work without holding an appropriate license,” and also applies to those who
perform electrical work.22 The TDLR is responsible for the implementation and enforcement of
the TESLA, and accordingly issues electricians’ licenses to qualified individuals.23
At trial, Jonathan Nixon testified that it was IAC’s understanding that SWECS’s foremen
were to supervise the licensed apprentices and journeymen, as well as unlicensed laborers, at the
STX and WTX locations. (ET Mar. 4, 2022, at 9:35 AM). Additionally, Mr. Evans exclaimed
that not a single employee on the crews at the STX and WTX projects would “be required to

21

Tex. State Office of Admin. Hearings, Proposal for Decision on Imposition of Admin. Penalty for Violations of
the Tex. Occ. Code, Docket No. 452-19-3465.ELC, 2019 TX SOAH LEXIS 22, at *1 (May 3, 2019).
22
Id.; see also Tex. State Office of Admin. Hearings, Proposal for Decision on Revocation of Journeyman
Electrician License & Denial of Application of Renewal, Docket No. 452-12-6613.ELC, 2012 TX SOAH LEXIS
422, at *10 (Sept. 17, 2012); see also TEX. OCC. CODE ANN. § 1305.151.
23
Tex. State Office of Admin. Hearings, Proposal for Decision on Revocation of Journeyman Electrician License &
Denial of Application of Renewal, Docket No. 452-12-6613.ELC, 2012 TX SOAH LEXIS 422, at *10 (Sept. 17,
2012). The Occupations Code does not delineate what license a “foreman,” “general foreman,” or “superintendent”
requires, and the Court has been unable to locate any administrative proceeding or case law denoting a distinction.
However, Texas administrative proceedings seem to implicate that a licensed electrician, whether an apprentice,
journeyman, or higher licensure status, is unable to supervise individuals of a superior classification than oneself.
See, e.g., Tex. State Office of Admin. Hearings, Exceptions to Proposal for Decision on Application for Restricted
License, Docket No. 452-21-0042.ELC, 2021 TX SOAH LEXIS 7, at *3 (Mar. 11, 2021) (observing that an
apprentice can be supervised by a master electrician, journeyman, “or even potentially another [a]pprentice”).

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have a journeyman electrician’s license.” (Josh Evans Deposition 44:6–8). After a review of the
applicable provisions in the Occupations Code, the Court observes that it would be nonsensical
to allow a less-experienced licensed electrician such as an apprentice to supervise a master
electrician or journeyman.
Further, Joseph “Joe” Davis, SWECS’s general manager in 2017, acknowledged that
SWECS was aware of the “new classification of industrial journeyman [that] was added to [the]
TD[L]R,” and that the “law was in effect . . . during the time frame that work was being
performed at S[TX] and W[TX].” (Joe Davis Deposition 31:18–21, 33:2–10).24 Therefore, a
foreman, general foreman, or superintendent, whose primary responsibilities include the
oversight and supervision of both licensed and unlicensed electricians, requires at least a
journeyman’s license as promulgated under the Occupations Code to meet the contractual
obligations at issue in this case. As Mr. Davis concurred, if the journeyman’s licensure statute
did apply, it “would [have] be[en] a breach of [SWECS’s] policy.”

(Id. 34:25–35:7).

Consequently, if an employee designated by SWECS as a foreman does not possess at least a
journeyman’s license, SWECS overcharged for his labor.
Upon reviewing the available backup, including invoices, timesheets, and bills provided
to IAC by SWECS, as well as publicly available documents on the TDLR website, the Court has
uncovered dozens of individuals whose bill rates exceeded their licensure status. In hindsight,
instead of merely charging IAC with overloaded, unjustified labor costs, SWECS could have
bolstered its labor reserves by hiring more apprentices, foremen, and supervisors.

Though

An argument advanced by SWECS both at trial and in Mr. Davis’s deposition was that the new journeyman’s
statute did not apply to the STX and WTX projects which SWECS was to perform. (See Joe Davis Deposition
50:16–19 (“Whether [the law] applied or not, I would disagree with [IAC].”); see also Brandon Fortenberry
Deposition 87:18–88:3 (stating that he “may be wrong” in his statement that only an apprentice license is required)).
The Occupations Code enumerated a few exemptions for the licensure requirements, none of which are applicable
here. TEX. OCC. CODE ANN. § 1305.003; see also Tex. State Office of Admin. Hearings, Proposal for Decision on
Imposition of Admin. Penalty for Violations of the Texas Occupations Code, Docket No. 452-09-3434.ELC, 2009
TX SOAH LEXIS 531, at *11 (July 23, 2009).
24

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SWECS may have provided incomplete invoices for a majority of the challenged EWRs, IAC
could have inquired into the precise employees’ names at the trial. IAC has not met its burden of
demonstrating overbilling for most of the challenged EWRs, and therefore, cannot recover in this
regard.
In many of these instances, IAC has provided payment in full to SWECS.

Prior

overpayment for services does not impinge on a party’s ability to collect on the difference
between the invoiced amount and the actual charge incurred. See, e.g., Ward v. Washington, No.
14-11-001083-CV, 2013 WL 3243138, at *9–10 (Tex. App.—Houston [14th Dist.] June 25,
2013, no pet.) (mem. op.) (affirming jury’s award of ex post damages for overpayment). Given
SWECS’s breach of contract in labor overbilling, the Court concludes IAC is entitled to an offset
against any damages awarded to SWECS in this case.
The Court additionally holds that SWECS breached the governing POs by overbilling
IAC for materials spent. SWECS agreed to provide accurate and complete invoices to IAC,
which the Court determines includes “materials” and rental equipment. As with labor hours,
SWECS maintained inaccurate and incomplete records for the materials it utilized on the EWRs,
but nevertheless charged IAC for amounts not otherwise proven. The Court examined the
evidence before it, including invoices, timesheets upon which SWECS was to notate the
materials and rental equipment used for a given day’s work, and the bills provided to IAC by
SWECS. Two items were found to have been billed, but not accurately reflected upon the
timesheets, totaling $400.10.
To the extent that IAC claims overbilling for other materials, the Court finds IAC has
failed to meet its burden of demonstrating that the timesheets and EWRs are inaccurately
represented in the final bill by SWECS. Given SWECS’s failure to keep accurate and verifiable

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materials records, and SWECS’s breach of contract in materials overbilling, the Court concludes
that IAC is also entitled to an offset for materials against any award to SWECS in this matter.
The Court holds SWECS breached the provisions of the POs by performing OT work
prior to receiving written approval to do so by IAC. As with many of the other circumspective
contractual terms of the POs, SWECS was required to seek written pre-approval by IAC to
perform any work which would count as OT (work over forty hours per week per employee). In
eight separate instances, on both the STX and WTX sites, SWECS billed IAC for OT in violation
of SWECS’s obligations to alert IAC and receive authorization beforehand.
Next, the Court holds SWECS did not breach the provisions of the T&Cs regarding the
timeliness of submission of invoices to IAC. Following written notice of termination of the
contracts, the POs and T&Cs required SWECS to submit invoices to IAC within 90 days.
However, the Court has not identified any written notice of termination in the record concerning
any of the invoices. Therefore, the 90-day deadline was in stasis, never triggered. As to IAC’s
attempt to apply the 90-day limit on invoice submission absent any written notice of termination,
an ominous wind blows sand through IAC’s contractual fingers.

Accordingly, the Court

concludes SWECS did not breach the contracts as to the timely submission of invoices.
Lastly, IAC claims SWECS must indemnify it for amounts IAC deducted from IAC’s
final billing to Preferred Sands related to SWECS’s faulty electrical work under a settlement
agreement IAC entered to avoid litigation with Preferred Sands.

IAC made a demand on

SWECS in the amount of $2,000,000.00 for the loss incurred in the amount that IAC wrote off
and/or deducted from IAC’s final billing to Preferred Sands. (Doc. 45 at 20). The Court holds
SWECS breached the contract by failing to honor the unambiguous indemnity obligation.

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Texas authority25 mandates that indemnity agreements are strictly construed in favor of
the indemnitor. Levco Constr., Inc. v. Whole Foods Mkt. Rocky Mountain/Sw. L.P., 549 S.W.3d
618, 648 (Tex. App.—Houston [1st Dist.] 2017, no pet.); Ethyl Corp. v. Daniel Constr. Co., 725
S.W.2d 705, 707 (Tex. 1987) (stating that “[a]n examination of cases from this court reveals its
trend toward more strict construction of indemnity contracts”).

This rule requiring strict

construction favoring the indemnitor bars the extension, by construction or implication, of the
indemnitor’s duty beyond the precise terms of the agreement. This is not a rule of construction
but, rather, a rule of substantive law that applies only after the parties’ intent has been
ascertained through ordinary rules of construction.

The T&Cs state that the “Purchase Order shall be interpreted and enforced under the laws of the State of Kansas
applicable to contracts made and to be performed entirely within such State without giving effect to choice of law
principles of such State.” (Plaintiff’s Exhibit No. 1). While courts generally honor contracting parties’ bargainedfor and expressed choice of which state’s laws govern the performance of a contract, the contracting parties’
freedom to choose what state’s laws apply is not unlimited. DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 677
(Tex. 1990). In DeSantis, a Florida corporation filed suit in Texas against one of its Texas employees for violating a
non-compete agreement. The agreement contained a choice-of-law provision that specified Florida law would
govern any disputes under the agreement. DeSantis, 793 S.W.2d at 681. In holding that Texas law should govern
the dispute despite the choice-of-law provision, the Texas Supreme Court reasoned that Texas law should control
because, among other things, “the law governing enforcement of noncompetition agreements is fundamental policy
in Texas” and “to apply the law of another state to determine the enforceability of such an agreement in the
circumstances of a case like this would be contrary to that policy.” Id. at 681. Thus, the court held that
enforceability of the non-compete agreement “must be judged by Texas law, not Florida law.” Id. Parties “cannot
require that their contract be governed by the law of a jurisdiction which has no relation whatever to them or their
agreement. And they cannot by agreement thwart or offend the public policy of the state the law of which ought
otherwise to apply.” Id. Notably, applying the law of another state is “not contrary to the fundamental policy of the
forum merely because it leads to a different result than would obtain under the forum’s law.” Id. at 680. Here, the
Court finds that Texas has a substantial relationship to the parties and the transactions, so the application of Texas
law is not precluded in this case. Further, Texas law would not be contrary to any fundamental policy of Kansas,
which the parties concede has substantially similar law to the forum state. In this case, Texas has a materially
greater interest in determining the issue of indemnity for contractors and subcontractors operating construction
projects in Texas, and Texas has the most significant relationship to the transactions and the parties. SWECS is a
Texas Limited Partnership. Preferred Sands, the frac sand mining company and IAC’s client, operated in Texas.
The frac sand facilities were built in Texas. SWECS is regulated by the TDLR in Texas. This case was originally
filed in Texas state court and subsequently removed to the United States District Court for the Western District of
Texas, Midland/Odessa Division, and this dispute has been wholly litigated in Texas. With respect to the indemnity
issue, the Court finds that Texas has the most significant relationship where the allegedly deficient work was
performed that gave rise to the indemnity claim. Finally, no party advocates for the application of Kansas law to the
indemnity issue. For this reason, the Court holds that Texas law governs the enforceability of the T&Cs’ indemnity
provision.
25

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The claims of indemnification here are founded upon contract. That is, SWECS must
have agreed to indemnify IAC for the $2,000,000.00 credit memo deducted by Preferred Sands
from IAC’s final billing under their settlement agreement. Further, the indemnity agreement
somehow must have encompassed the claim urged by Preferred Sands against IAC. The burden
to establish that link is on IAC since it sought to impose liability upon SWECS at trial. The
Court begins with the agreements between SWECS and IAC, starting with the T&Cs and
culminating in the POs.
SWECS agreed to indemnify and hold harmless IAC, and Preferred Sands, from and
against all claims, damages, losses, and expenses, including attorney fees arising out of
SWECS’s work and services provided at the STX and WTX facilities:

(Plaintiff’s Exhibit No. 1).
Based on the evidence presented at the bench trial, SWECS is a “Supplier” and
indemnitor, IAC is an indemnitee, and Preferred Sands is IAC’s customer for purposes of the
indemnity provision. The $2,000,000.00 loss claimed by Preferred Sands against IAC’s final
invoice due to SWECS’s deficient electrical work that had to be remedied by third parties arising

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from SWECS’s breach of its representations, warranties, agreements, and covenants contained in
the T&Cs is a claim that falls within the scope of the indemnity agreement. Because the
$2,000,000.00 credit memo at issue against IAC’s final billing to Preferred Sands solely involves
SWECS’s deficient performance under the contracts, the Court finds that IAC does not seek
indemnity from SWECS for the consequences of IAC’s own fault, and thus, the indemnity
provision is enforceable under Texas law. Accordingly, SWECS has an obligation to indemnify
IAC against Preferred Sands’ claims related to the deficient electrical work performed by
SWECS, SWECS breached its contractual obligations to IAC by refusing to do so, and IAC is
entitled to recover damages.
In the context of an indemnity clause, the terms “arising out of” do not mean that the
indemnitee must show direct or proximate causation. Utica Nat’l Ins. Co. v. Am. Indem. Co.,
141 S.W.3d 198, 203 (Tex. 2003) (“‘Arising out of’ are words of much broader significance than
‘caused by.’”). Rather, such terms require only that a “general nexus” be established between
the subcontractor’s obligations and the detriment for which indemnity is sought. Id. Here, the
T&Cs provide SWECS was responsible for any losses arising out of a breach by SWECS of any
of its representations, warranties, agreements and/or covenants contained in the contracts.
(Plaintiff’s Exhibit No. 1). Accordingly, IAC must establish the “general nexus” required to
bring the alleged loss—the $2,000,000 write-off from IAC’s final invoice to Preferred Sands—
under the purview of the indemnification clause.
The settlement agreement does not specify the basis for the $2,000,000 credit memo.
IAC, in its settlement agreement with Preferred Sands, simply agrees to issue a write-off of
$2,000,000 to Preferred Sands as a credit against IAC’s existing invoices without explanation:

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(Defendants’ Exhibit No. 85 at 2).
Mr. Nixon testified at trial that the $2,000,000 credit was based upon the alleged
increased costs resulting from SWECS’s deficient performance as set forth in the PowerPoint
created at the request of IAC as a precursor to settlement negotiations with Preferred Sands by
David White, Director of Capital Projects at Preferred Sands (subsequently employed by Signal
Peak Silica, the company that acquired the assets of Preferred Sands). (ET March 4, 2022, at
10:03 A.M.; David White Deposition 5:18–23; 63:23–25; 64:1–8). The total contract value was
approximately 125 million dollars per project. (David White Deposition 9:12–14). Preferred
Sands initially estimated the value reduction to the contract due to the electrical deficiencies
caused by SWECS was 2.5 million dollars. (Id. 52:3–13).
Mr. White testified that Preferred Sands had electrical consultants come out and provide
analysis, and “finally, [Preferred Sands] ended up hiring an electrical superintendent and an
electrical contractor to remedy many of the deficiencies that [Preferred Sands] had at both
facilities” due to SWECS’s deficient performance. (David White Deposition 40:7–12). Because
Preferred Sands did not believe SWECS had the competency to assess the electrical deficiencies,
Preferred Sands incurred direct costs from third parties, including Turnkey Processing Solutions
(“TPS”) who, in turn, consulted with B&B Electrical, who had expertise as competent electrical
companies. (Id. 51:18–20; 69:23–25). Preferred Sands issued approximately $1,000,000.00 in
POs to TPS for corrective work due to electrical deficiencies caused by SWECS. (Id. 52:16–25;
53:1–19).

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Mr. White explained SWECS’s failure to perform its electrical work in conformance with
the contracts as follows:
Preferred Sands expressed concerns with the competency of Southwest Electrical
from the beginning of the project. We communicated this concern to IAC in
writing, in our daily and weekly meetings and directly to Southwest Electrical.
Preferred Sands internal project communication[ ] largely surrounded concerns
with the electrical portion of the project scope. This internal communication
surrounding electrical issues has continued well beyond the construction phase of
the work. Electrical issues have been the single largest contributing factor, of
equipment failure, operational downtime, and safety issues raised.
***
Due to the inability of Southwest to keep their own commitments, delivery and
schedule promises, and to keep up or track the amount of rework due to code
violations or incorrect installation; Preferred was in a precarious situation with
Lenders, Project Stakeholders, and Customers with contracted orders. These
demands became so overwhelming that Preferred was forced to start the plants up
in manual and override the control system. It was several months into operating
the plant before the electrical was completed enough to finish the controls and run
the plant in auto.
***
It was not until we were in full operation that we began to see how truly
devastating the electrical installation was, especially [ ] at our Monahans location.
The number of code violations, incorrect installations, and missing components
has been staggering. Preferred has hired multiple electrical and consulting firms
including, Monahans Electric, TMT Solutions, Nexus, TPS and B&B Electric, to
come in and assist in troubleshooting the poor installations; causing severe
operational down time, life threating situations and MSHA violations. Preferred
has spent over one million dollars in direct remediation of the electrical systems
and failures. That million dollars in direct cost has been a pittance is comparison
to the tens of millions lost in customer commitments, lost contracts, lender issues,
productivity issues, and so on.
After we began operations, the failures with the electrical systems were so
prominent that we refused to allow IAC hire SWE for our Oakwood Oklahoma
project; invoking our contractual right of refusal forcing IAC to hire a different
contractor with a much higher contracted price point.
With the numerous pictures, e-mails, expert analysis of the poor electrical
installation, Preferred threatened a lawsuit with IAC if an immediate settlement
could not be reached to make good on primarily the electrical failures. Preferred
and IAC ultimately reached a multi-million dollar settlement including reduction
of invoice amounts, deferred payments until Preferred could get the plants in solid

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operating order, and to outright wave payment on outstanding invoices for
overtime, escalated work, and claims for additional contracted scope.
No other company outside of SWE was prohibited form performing work on our
Oakwood Oklahoma facility. Further the Oakwood project started up smoothly
with none of the electrical issues that have plagued us on our TX plants. With the
successful startup of the Oakwood project, Preferred has continued working with
IAC on additional projects.
(Defendants’ Exhibit No. 82 at 2–4). Because “Preferred threatened a lawsuit with IAC if an
immediate settlement could not be reached to make good on primarily the electrical
failures . . . including reduction of invoiced amounts,” the Court finds that IAC has established a
“general nexus” between the $2,000,000.00 credit memo to Preferred Sands and SWECS’s
breach of representations, warranties, agreements and/or covenants contained in the contracts, as
described above. Id. at 3.
For a settling indemnitee to recover an amount of the settlement from its indemnitor, the
indemnitee must show its potential liability to a claimant and that the settlement was reasonable,
prudent, and made in good faith under the circumstances. Getty Oil Corp. v. Duncan, 721
S.W.2d 475, 477 (Tex. App.—Corpus Christi 1986, writ ref’d n.r.e.). Without this requirement,
the settling indemnitee would have no incentive to bargain with the claimant for a reasonable
settlement amount because the indemnitee would in any case be assured of full recovery from the
indemnitor, even if the settlement amount was exorbitant.
SWECS did not raise the issue of the reasonableness of the settlement agreement between
IAC and Preferred Sands at trial. However, the Court finds IAC’s agreement to reduce its final
billing to Preferred Sands by $2,000,000.00 in compensation for the loss attributable to the
electrical deficiencies to be reasonable, prudent, and made in good faith under the circumstances.
The evidence before the Court shows “Preferred [Sands] has spent over one million dollars in
direct mediation of the electrical systems and failures.” (Defendants’ Exhibit No. 82 at 4). Mr.

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White testified that Preferred Sands used third-party work to resolve the electrical deficiencies:
“For another month and a half to two months, [Preferred Sands] had electrical contractors on site
and about a million dollars.” (David White Deposition 43:3–9).
Preferred Sands withheld $3.2 million dollars from IAC, and Mr. White attributed $1.7
million dollars of that amount to the direct cost of correcting SWECS’s deficiencies due to
electrical failure. (David White Deposition 43:20–24; 71:14–15). Approximately $1,000,000.00
related to direct expenses incurred by Preferred Sands in correcting electrical deficiencies caused
by SWECS by hiring TPS, a third party electrical consultant, who consulted with B&B
Electrical. (Id. 53:1–19). Mr. White testified 1.7 million dollars was a conservative estimate of
the value of dollars that SWECS cost Preferred Sands to fix the electrical issues. (Id. 56:16–24).
In addition to the $1.7 million direct cost, Mr. White “recommended a 2.5 million dollar
reduction on the value based upon SWECS, and the ultimate settlement of that was a two million
dollar value specifically attributable to SWECS.” (Id. 62:1–4; 70:2–7).
Accordingly, the Court finds IAC has proved the reasonableness of the $2,000,000.00
settlement amount with Preferred Sands to remediate the electrical systems and failures caused
by SWECS’s deficient performance.26 After weighing the credibility of the evidence presented

The Texas Anti-Indemnity Act (“TAIA”) generally prohibits one party, the indemnitor, from indemnifying
another party, the indemnitee, against a claim caused by the fault or the breach of contract of the indemnitee in the
construction context. See Tex. Ins. Code Ann. § 151.102; Tex. Ins. Code § 151.001(5) (defining “construction
contract” to include “a contract, subcontract, or agreement . . . for the furnishing of material or equipment for, a
building, structure, appurtenance, or other improvement to or on public or private real property”). In practice, this
provision prohibits Entity A from requiring Entity B to indemnify Entity A against the consequences of the fault or
breach of contract of Entity A. This subchapter of the Insurance Code applies to construction contracts for
“project[s] for which . . . indemnitor[s]” are “provided or procure[ ] insurance subject to” Chapter 151 or Title 10.
TEX. INS. CODE ANN. § 151.101(a). Because no party argues otherwise, the Court assumes section 151.101(a)
applies to the agreement. The T&Cs contain the following insurance requirements: “Supplier also shall
continuously maintain appropriate insurance for protection against the claims of all persons or entities in an amount
of not less than Two Million ($2,000,000) Dollars per occurrence covering injury or death to one or more persons,
and not less than Three Hundred Thousand ($300,000) Dollars per occurrence covering property damage, insuring
Indemnities against all liability that may accrue against them or any of them by reason of the sale by IAC to third
parties of Products produced or partially produced by Supplier or as to which Supplier provided services of any
nature.” (Plaintiff’s Exhibit No. 1). Assuming SWECS is an indemnitor and IAC is an indemnitee for TAIA
26

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at trial, the Court is of the opinion that IAC is entitled to indemnity from SWECS in a reasonable
amount of $2,000,000.00, negotiated in good faith under the IAC/Preferred Sands settlement,
which was written off and/or deducted from IAC’s final billing to Preferred Sands due to the
losses arising from SWECS’s breach.
4.

Negligence

Contracts governed the work SWECS performed at STX and WTX. SWECS and IAC
both claim that the other party breached the contracts. IAC also pleads a negligence cause of
action sounding in tort. Because the relationship between SWECS and IAC is controlled by the
parties’ contracts, the economic loss rule bars IAC’s negligence tort claim.
“The economic loss rule generally precludes recovery in tort for economic losses
resulting from a party’s failure to perform under a contract when the harm consists only of the
economic loss of a contractual expectancy.” Chapman Custom Homes, Inc. v. Dall. Plumbing
Co., 445 S.W.3d 716, 718 (Tex. 2014) (per curiam) (citations omitted). The rationale for the
economic loss rule is that, when parties enter into a contract, they allocate the risk of economic
loss between themselves through the contract. LAN/STV v. Martin K. Eby Const. Co., Inc., 435
S.W.3d 234, 241 (Tex. 2014); Trans-Gulf v. Performance Aircraft Servs., Inc. 82 S.W.3d 691,
695 (Tex. App.—Eastland 2002, no pet.) (holding courts should not “permit[] a tort recovery for
purely economic loss”).
Courts should assess the source of the parties’ relationship or duty to each other to
determine if the economic loss rule applies. See Levco Constr., Inc. v. Whole Foods Mkt. Rocky

purposes, the Court finds the provision of the contracts that requires SWECS to indemnify IAC against claims
arising out of SWECS’s breach is not void under Texas Insurance Code § 151.102 as to the $2,000,000.00 credit
memo. TEX. INS. CODE ANN. § 151.102. As explained above, § 151.102 of the Texas Insurance Code primarily
blocks enforcement of an obligation to indemnify another party or its employees for their fault. Because the
$2,000,000.00 reduction from IAC’s final invoice to Preferred Sands under their settlement agreement solely relates
to losses arising out of SWECS’s breach, the indemnity agreement is effective in that it does not require SWECS to
indemnify IAC for any amounts arising from IAC’s wrongdoing.

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Mountain/Sw. L.P., 549 S.W.3d 618, 635 (Tex. App.—Houston [1st Dist.] 2017, no pet.)
(finding economic loss rule barred subcontractor’s recovery on a fraud claim against contractor
because work was performed pursuant to contract). If the source of that relationship is a
contract, then the injured party cannot recover an economic loss through a tort.
Here, IAC seeks to recover economic damages for SWECS’s deficient performance
under the contracts. See, e.g., TEX. CIV. PRAC. & REM. CODE ANN. § 41.001(4) (economic
damages are those intended to “compensate a claimant for actual economic or pecuniary loss”).
Specifically, IAC seeks to recover for economic injuries it incurred from SWECS’s performance
of the electrical subcontract work at the WTX and STX projects pursuant to the POs. The source
of the parties’ relationship is contract.

Therefore, economic loss doctrine bars IAC from

pursuing its tort cause of action for negligence.
5.

Breach of Implied Warranties

IAC’s implied-warranty counterclaims include both merchantability and fitness for a
particular purpose. (Doc. 45). “Public policy does not justify imposing an implied warranty for
service transactions in the absence of a demonstrated, compelling need,” and “[t]here is no
compelling need for an implied warranty when other adequate remedies are available[.]” Rocky
Mountain Helicopters, Inc. v. Lubbock Cty. Hosp. Dist., 987 S.W.2d 50, 53 (Tex. 1998). Thus,
to prevail on its claims for breach of implied warranties, IAC must prove it had no other
adequate remedy. See, e.g., Irwin v. Nortex Found. Designs, Inc., No. 02-08-436-CV, 2009 WL
2462566, at *3 (Tex. App.—Fort Worth Aug. 13, 2009, no pet.) (mem. op.) (affirming summary
judgment on implied warranty claim arising from home construction defects based on evidence
claimant had other adequate remedies through prior settlement); Trans-Gulf Corp. v.
Performance Aircraft Servs., Inc., 82 S.W.3d 691, 697 (Tex. App.—Eastland 2002, no pet.)

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(declining to impose an implied warranty on claims arising from allegedly defective repair of
airplane fuel tanks discovered by subsequent purchaser because the “economic loss should be
restricted to the risk allocations contained within the contracts”).
In this case, IAC has other adequate remedies as demonstrated by its breach of contract
claims against SWECS and the Court finds no compelling need to impose an implied warranty in
this case. See Rocky Mountain Helicopters, 987 S.W.2d at 53.
6.

Affirmative Defenses

Except to the extent addressed in this opinion, the Court determines that the parties’
various affirmative defenses are either moot or the parties have not met their respective burdens
of proof.
i.

Offset

IAC asserts it is entitled to an offset or reduction in damages by the amounts owed to
IAC by SWECS arising out of contract or law for defective work and products, mistakes,
overcharges, incompetence, insufficient staffing, and improper site management. (Doc. 48 at 7).
Although IAC asserts offset as an affirmative defense, it is actually an equitable counterclaim
because it does not negate SWECS’s claims. See Bright & Co. v. Holbein Fam. Min. Tr., 995
S.W.2d 742, 747 (Tex. App.—San Antonio 1999, pet. denied) (holding that the defendant’s
overpayments of royalties in one period did not negate the plaintiff’s claim for nonpayment of
royalties in another period, and thus amounted to a counterclaim, rather than an affirmative
defense of offset).
Offset or “[s]etoff is a form of equitable counterclaim which brings together obligations
of parties opposing each other and, by judicial action, makes each obligation extinguish the
other[.] In order for one demand to be set off against another, both demands must mutually exist

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between the same parties.” Cap. Concepts Props. v. Mut. First, Inc., 35 F.3d 170, 175 (5th Cir.
1994) (interpreting Texas law); Nalle v. Harrell, 118 Tex. 149, 12 S.W.2d 550, 551 (1929)
(explaining that the aim of an offset or setoff is “to adjust the indebtedness between the parties,
and to permit executory process to be enforced only for the balance that may be due”) (internal
quotation marks omitted).
Accordingly, IAC’s counterclaim for offset has been addressed by the Court above in
conjunction with IAC’s counterclaim for breach of contract.
ii.

Conditions Precedent

IAC expressly denies that all conditions precedent to SWECS’s claim for breach of
contract have occurred. (Doc. 48 at 7). “A condition precedent is an act or event that must take
place before performance of a contractual obligation is due.” Cedyco Corp. v. PetroQuest
Energy, LLC, 497 F.3d 485, 488 (5th Cir. 2007); Centex Corp. v. Dalton, 840 S.W.2d 952, 956
(Tex. 1992). The “party seeking to recover under a contract bears the burden of proving that all
conditions precedent have been satisfied.” Associated Indem. Corp. v. CAT Contracting, Inc.,
964 S.W.2d 276, 283 (Tex. 1998). “[T]o determine whether a condition precedent exists, the
intention of the parties must be ascertained; and that can be done only by looking at the entire
contract.” Solar Applications Eng’r, Inc. v. T.A. Operating Corp., 327 S.W.3d 104, 109 (Tex.
2010); Criswell v. Eur. Crossroads Shopping Ctr., Ltd., 792 S.W.2d 945, 948 (Tex. 1990).
Generally, terms such as “if,” “provided that,” “on condition that,” or similar language
must be used in the contract to support finding a condition precedent. Id. “When no conditional
language is used and another reasonable interpretation of the contract is possible, the terms will
be construed as a covenant in order to prevent a forfeiture.” Solar Applications Eng’r, 327
S.W.3d at 109 (citation and internal quotation marks omitted); Criswell, 792 S.W.2d at 948.

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Likewise, “[w]hen the intent of the parties is doubtful or when a condition would impose an
absurd or impossible result, the agreement will be interpreted as creating a covenant rather than a
condition [precedent].” Id. Because of their harshness in operation, conditions precedent are
generally not read into contracts. Id.
“When an owner breaches a construction contract, it relinquishes its contractual
procedural rights concerning change orders and claims for additional costs.” Shintech Inc. v.
Grp. Constructors, Inc., 688 S.W.2d 144, 151 (Tex. App.— Houston [14th Dist.] 1985, no
writ).27 IAC cannot now invoke the 90-day limit on submitting invoices where no written notice
of termination was provided, and IAC cannot invoke the change order process as a condition
precedent to payment for the Unpaid Work because IAC breached the contracts in this regard.
The Court does not find any other conditions precedent preclude the parties’ claims in this
matter.
iii.

Release and/or Accord and Satisfaction

Since IAC failed to issue POs or change orders for the Unpaid Work, release and/or
accord and satisfaction is inapplicable. An accord is a contract under which both parties agree
that one party will render different or alternative performance to settle a claim between the
parties, and the satisfaction is the performance of the accord. Harris v. Rowe, 593 S.W.2d 303,
306 (Tex. 1979). As to PO Nos. E30974-17112, E31474-17125, and Invoice Nos. SC126-30,
SC126-31, SC126-32, and SC126-33, SWECS submitted an email followed by an invoice to IAC
in response to the change in scope of work contemplating the increase, or decrease, in labor and

Gulf Liquids New River Project, LLC v. Gulsby Eng’g, Inc., 356 S.W.3d 54, 71 (Tex. App.—Houston [1st Dist.]
2011, no pet.) (“Because [owner] failed to pay [contractor] under Contracts 1 & 2, it cannot now rely on the
procedural provisions of the extra work clauses in those contracts to avoid payment for extra work.”); Baker Marine
Corp. v. Weatherby Eng’g Co., 710 S.W.2d 690, 696 (Tex. App.—Corpus Christi 1986, no writ) (“[T]he breaching
party cannot take advantage of provisions favorable to it contained in the very contract which it was found to have
breached.”).
27

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materials that SWECS would and did incur as a result of the changed scope. While IAC
accepted SWECS’s proposal via email correspondence, IAC failed to issue new POs or change
orders for the work. Thus, release and/or accord and satisfaction does not bar SWECS from
claiming it is entitled to payment for the Unpaid Work.
However, SWECS released any claim for equitable adjustment relating to disruption,
productivity loss, or delay damages by signing Certificates for Payment to IAC, certifying that it
had been, or would be, paid in full for work performed and failing to include a reservation of
rights to seek equitable adjustment for cumulative impact related to direct labor costs. The Court
recognizes each PO as a standalone transaction with final invoices and final payments. Because
SWECS recognized or should have recognized the effect of cumulative impact due to increased
labor costs resulting from IAC’s requested changes to the work, SWECS should have requested
equitable adjustment via change orders prior to signing the unconditional Certificates for
Payment releasing any claim for delay or disruption damages. SWECS may not now reopen
closed POs that have been released in order to seek equitable adjustment for cumulative impact
resulting from delay, disruption, or productivity loss.
iv.

Waiver

“Waiver is the intentional relinquishment of a right actually known, or intentional
conduct inconsistent with claiming that right.” Ulico Cas. Co. v. Allied Pilots Ass’n, 262 S.W.3d
773, 778 (Tex. 2008). The party asserting waiver must establish: “(1) an existing right, benefit,
or advantage held by a party; (2) the party’s actual knowledge of its existence; and (3) the party’s
actual intent to relinquish the right, or intentional conduct inconsistent with the right.” Id.
Waiver can be express or implied. Motor Vehicle Bd. v. El Paso Indep. Auto. Dealers Ass’n,
Inc., 1 S.W.3d 108, 111 (Tex.1999). Express waiver can be established by evidence of a party’s

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express renunciation of a known right. Id. “[F]or implied waiver to be found through a party’s
actions, intent must be clearly demonstrated by the surrounding facts and circumstances.” Id.
SWECS did not waive its right to recover for the Unpaid Work in relation to PO Nos.
E30974-17112, E31474-17125, and Invoice Nos. SC126-30, SC126-31, SC126-32, and SC12633, as SWECS did not enter into additional POs covering this work, nor did SWECS later submit
Applications and Certificates for Payment certifying that it had been, or would be, paid in full for
the Unpaid Work performed.

SWECS is a sophisticated party with significant electrical

contractor experience. SWECS accounted for each change to the recoverable Unpaid Work with
a detailed proposal identifying the change in labor and materials incurred as a result of the
change. IAC accepted the proposals by email correspondence but failed to issue corresponding
POs or change orders or pay the invoices issued to it by SWECS in relation to the recoverable
Unpaid Work.
However, SWECS has waived its right to recover for any other Unpaid Work including
PO No. E32029-17125 and/or Invoice Nos. SC125-21, SC125-7, SC126-19, SC126-20, SC12621, SC126-22, SC126-23, SC126-27, SC126-28, SC126-29, and BC-E17125. SWECS failed to
account for changes to the agreed scope of work and has not met its burden to show any amount
due and owing by IAC to SWECS with respect to this additional work.
Further, SWECS waived the right to seek equitable adjustment under the contracts by
failing to reserve a claim for cumulative impact damages in relation to delays, disruptions, or
other productivity loss. As shown above, SWECS, as an experienced electrical contractor, was
well aware of how to address the effect of a change on other unchanged work and include that
effect in the bid price or proposal, and SWECS knew how to reserve the right to seek equitable
adjustment for cumulative impact, but still failed to do so. The magnitude of the impact of the

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changes were either recognized or should have been recognized by SWECS as the job was
winding down. To preserve a cumulative impact claim, SWECS was obligated to assert that the
contracts were no longer binding or to reserve its rights to assert equitable adjustment or breach
by excessive changes to the contracts. Instead of reserving its rights, SWECS re-affirmed its
adherence to the contracts and waived any cumulative impact claim. While SWECS was able to
survive IAC’s summary judgment motion on delay damages, SWECS’s failure to reserve any
rights to recover disruption costs and the cumulative impact of productivity loss is fatal to its
breach of contract claim.
v.

Estoppel

IAC relies on the defense of estoppel and/or quasi-estoppel. IAC contends that SWECS
is estopped from denying the existence of valid and existing contracts governing the parties by
virtue of the POs and T&Cs, and that SWECS was and remains the sole party responsible for
submission of all bids and pricing terms, including but not limited to the Base Scope POs. (Doc.
48 at 7).
Under the doctrine of estoppel by contract, a party may be estopped when its conduct
induces action in reliance upon it and “would operate as a fraud upon the assured to allow the
party to disavow [its] conduct.” Coffey v. Singer Asset Fin. Co., 223 S.W.3d 559, 569 (Tex.
App.—Dallas 2007, no pet.). The doctrine of estoppel by contract is simply another way of
saying that “a party is bound by the terms of [its] contract unless it is void, annulled, or set aside
in some way.” Id. “Estoppel by contract is a form of ‘quasi estoppel’ based on the idea that a
party to a contract will not be permitted to take a position inconsistent with its provisions, to the
prejudice of another.” Johnson v. Structured Asset Servs., LLC, 148 S.W.3d 711, 721–22 (Tex.
App.—Dallas 2004, no pet.).

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Unlike

equitable

estoppel,

quasi-estoppel

does

not

require

evidence

of

a

misrepresentation or detrimental reliance. Vessels v. Anschutz Corp., 823 S.W.2d 762, 765 (Tex.
App.—Texarkana 1992, writ denied); El Paso Nat’l Bank v. Southwest Numismatic Inv. Grp.,
Ltd., 548 S.W.2d 942, 948 (Tex. Civ. App.—El Paso 1977, no writ). This doctrine precludes a
party from asserting, to another’s disadvantage, a right inconsistent with a position previously
taken. Quasi-estoppel applies when it would be unconscionable to allow a party to maintain a
position that is inconsistent with one to which it previously acquiesced. Steubner Realty 19 v.
Cravens Road 88, 817 S.W.2d 160, 164 (Tex. App.—Houston [14th Dist.] 1991, no writ).
“[Q]uasi-estoppel forbids a party from accepting the benefits of a transaction or statute and then
subsequently taking an inconsistent position to avoid corresponding obligations or effects.”
Atkinson Gas Co. v. Albrecht, 878 S.W.2d 236, 240 (Tex. App.–Corpus Christi 1994, writ
denied).

“The doctrine essentially requires (1) a previous action and (2) a subsequent

inconsistent action which is thereby sought to be estopped.” Mulvey v. Mobil Producing Tex. &
N.M. Inc., 147 S.W.3d 594, 607 (Tex. App.—Corpus Christi 2004, pet. denied).
To the extent SWECS attempts to avoid the Certificates for Payment certifying no
additional amounts were owed and reaffirming the PO or invoice amounts without reserving the
right to equitable adjustment for cumulative impact, delay damages, disruption damages, or
productivity loss, SWECS is estopped from so doing. The Court is of the opinion that the parties
failed to present any other evidence in support of the affirmative defense of estoppel and/or
quasi-estoppel. Notably, the parties do not seek to avoid the contractual obligations or alter the
terms of the contracts but instead both IAC and SWECS seek to enforce the contracts as written.
vi.

Failure to Mitigate

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IAC asserts that by reason of its own mistakes, mismanagement, inadequate staffing,
incompetence, and failure to properly account and segregate, SWECS failed to mitigate its
damages, if any. (Doc. 48 at 6). SWECS also pleads the affirmative defense of failure to
mitigate. (Doc. 47 at 6). The Court concludes that the parties have not shown by credible
evidence that either party failed to mitigate its damages.
The mitigation of damages doctrine “prevents a party from recovering for damages
resulting from a breach of contract that could be avoided by reasonable efforts on the part of the
plaintiff.” Great Am. Ins. Co. v. N. Austin Mun. Util. Dist. No. 1, 908 S.W.2d 415, 426 (Tex.
1995). Texas law “requires a claimant to mitigate damages if it can do so with ‘trifling expense
or with reasonable exertions.’” Gunn Infiniti v. O’Byrne, 996 S.W.2d 854, 857 (Tex. 1999)
(quoting Great Am. Ins. Co., 908 S.W.2d at 426).
SWECS was required to mitigate any damages attributable to IAC’s breach to the extent
it could reasonably do so, and the Court concludes that SWECS satisfied its duty in this regard
by undertaking efforts to complete the projects in response to IAC’s demands. Likewise, the
Court finds IAC met its burden to mitigate any damages attributable to SWECS’s breach by
keeping SWECS on the projects to their completion. The Court believes both parties intended to
complete the projects in a timely manner. IAC’s demands were simply the result of design
changes to the projects and the difficulty IAC encountered in managing its subcontractors at the
jobsites. SWECS attempted to perform in good faith under the contracts. Regardless of the
predicament created by SWECS’s deficient performance, the evidence shows that SWECS
attempted to comply with IAC’s requests for electrical work. When IAC requested additional
work, SWECS made proposals and bids to complete the scope of work. In doing so, SWECS
satisfied its duty to take reasonable efforts to mitigate any damages it had incurred as a result of

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IAC’s breach. Similarly, IAC attempted to reconcile and pay SWECS for supported invoices in
a timely manner that complied with the change order process under the contracts.
vii.

Excuse from Performance Based on Prior Material Breach

“A fundamental principle of [Texas] contract law is that when one party to a contract
commits a material breach of that contract, the other party is discharged or excused from any
obligation to perform,” and its failure to perform cannot be considered a termination or breach of
the contract. Hernandez v. Gulf Grp. Lloyds, 875 S.W.2d 691, 692 (Tex. 1994); Jack v. State,
694 S.W.2d 391, 398–99 (Tex. App.—San Antonio 1985, writ ref’d n.r.e.).
A party who elects to treat a contract as continuing, however, deprives itself of any
excuse for ceasing performance on its own part. Hanks v. GAB Bus. Servs., Inc., 644 S.W.2d
707, 708 (Tex. 1982); Chilton Ins. Co. v. Pate & Pate Enters., Inc., 930 S.W.2d 877, 887 (Tex.
App.—San Antonio 1996, writ denied) (concluding that when the nonbreaching party continues
to insist on performance by the party in default after the breach, “the previous breach constitutes
no excuse for nonperformance on the part of the party not in default and the contract continues in
force for the benefit of both parties”). When one party breaches its contract, the other party must
elect whether to continue or cease performance under the contract. Compass Bank v. MFP Fin.
Servs., Inc., 152 S.W.3d 844, 858 (Tex. App.—Dallas 2005, pet. denied).
Any conduct “indicating an intent to continue will operate as a conclusive choice” but
does not deprive the nonbreaching party of its contract claim for the breach that has already
taken place. Id.; Gupta v. E. Idaho Tumor Inst., Inc., 140 S.W.3d 747, 757 (Tex. App.—Houston
[14th Dist.] 2004, pet. denied) (concluding that, while the nonbreaching party “must elect
between continuing or ceasing performance, the election does not affect whether [it] can sue for
a former or future breach.”). It is deprived only of any excuse for ceasing its own performance

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under the contract. Compass Bank, 152 S.W.3d at 858. Once the “non-breaching party elects to
treat the contract as continuing and insists the party in default continue performance, the
previous breach constitutes no excuse for nonperformance on the part of the party not in default
and the contract continues in force for the benefit of both parties.” Gupta, 140 S.W.3d at 756.
In building or construction contracts, the strict rule that one who has not fully or strictly
complied with a contract cannot maintain a suit for its breach is relaxed by the doctrine of
substantial performance, which allows the breaching party to go forward with a contract action
even though it has breached nonmaterial terms of the contract but has otherwise substantially
performed under the contract. Dobbins v. Redden, 785 S.W.2d 377, 378 (Tex. 1990); Vance, 677
S.W.2d at 481. Thus, the doctrine of substantial performance allows a party to a contract who
breaches but nevertheless substantially completes performance to sue on the parties’ contract and
recover damages for that performance under the contract. Dobbins, 785 S.W.2d at 378. The
doctrine of substantial performance can also be asserted as an affirmative defense to a breach of
contract claim. See Smith v. Smith, 112 S.W.3d 275, 279 (Tex. App.—Corpus Christi 2003, pet.
denied). Substantial performance is a condition precedent to bringing a lawsuit on a contract.
Atkinson v. Jackson Bros., 270 S.W. 848, 850 (Tex. Comm’n App.1925). The contractor seeking
to recover under the doctrine of substantial performance has the burden to plead and prove
substantial performance. Carr v. Norstok Bldg. Sys., Inc., 767 S.W.2d 936, 940 (Tex. App.–
Beaumont 1989, no writ).
“Substantial performance” means:
[T]he contractor must have in good faith intended to comply with the contract,
and shall have substantially done so in the sense that the defects are not pervasive,
do not constitute a deviation from the general plan contemplated for the work, and
are not so essential that the object of the parties in making the contract and its
purpose cannot, without difficulty, be accomplished by remedying them.

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Turner, Collie & Braden, Inc. v. Brookhollow, Inc., 642 S.W.2d 160, 164 (Tex. 1982) (quoting
Atkinson, 270 S.W. at 850).
“[T]he doctrine assumes, if there is substantial performance, the breach is immaterial.”
Gentry v. Squires Const., Inc., 188 S.W.3d 396, 403, n.3 (Tex. App.—Dallas 2006, no pet.).
Accordingly, “[i]f a party has committed a material breach of a contract, [its] performance
cannot be substantial.” Patel v. Ambassador Drycleaning & Laundry Co., 86 S.W.3d 304, 309
(Tex. App.—Eastland 2002, no pet.) (citing Measday v. Kwik–Kopy Corp., 713 F.2d 118 (5th
Cir. 1983) (“The principle of substantial performance may be expressed by saying . . . that a
breach which is material, or which goes to the root of the matter or essence of the contract, is
fatal to the plaintiff’s case in spite of [its] part performance.”)).
Whether a breach is material is generally a question of fact. Mustang Pipeline Co. v.
Driver Pipeline Co., 134 S.W.3d 195, 196 (Tex. 2004). A breach “is material if the injured party
does not receive the substantial benefit of the bargain” under the contract. Id. When “it is clear
the parties intend that time is of the essence to a contract, timely performance is essential to a
party’s right to require performance by the other party.” Id. This is not to say that “in every
case, a ‘time is of the essence’ provision ipso facto makes any delay a material breach.” CFS
Forming Structures Co., Inc. v. Flintco, Inc., 393 F. App’x 136, 144–45 (5th Cir. 2010)
(unpublished). Such a determination instead depends on the facts of each case. Id. at 144 (citing
and discussing the holding in Mustang Pipeline Co., 134 S.W.3d at 200). “In determining the
materiality of a breach, courts will consider, among other things, the extent to which the
nonbreaching party will be deprived of the benefit that it could have reasonably anticipated from
full performance.” Hernandez, 875 S.W.2d at 693. Other factors include:
(i) the extent to which the injured party can be adequately compensated for the
part of that benefit of which he will be deprived; (ii) the extent to which the party

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failing to perform or to offer to perform will suffer forfeiture; (iii) the likelihood
that the party failing to perform or to offer to perform will cure his failure, taking
account of all the circumstances including any reasonable assurances; (iv) the
extent to which the behavior of the party failing to perform or to offer to perform
comports with standards of good faith and fair dealing.
Id.
By continuing to insist that SWECS perform despite its breach, IAC’s performance under
the contracts was not excused. By continuing to conduct electrical work and submit invoices
despite its breach, SWECS’s performance under the contracts was not excused. Both parties
were, therefore, required to continue their performance under the contracts but did not waive
their right to sue for breach of contract against the other.
Furthermore, SWECS is not relieved of its obligation to indemnify IAC due to any prior
material breach since an indemnity agreement “is an original obligation between the contracting
parties and independent of other agreements.” Tesoro Petroleum Corp. v. Nabors Drilling U.S.,
106 S.W.3d 118, 127 (Tex. App.—Houston [1st Dist.] 2002, pet. denied) (citing Joseph Thomas,
Inc. v. Graham, 842 S.W.2d 343, 346 (Tex. App.—Tyler 1992, no writ)).

Because the

indemnification clause of the contract is an independent covenant, SWECS is not excused from
its obligations under the contract based on allegations that IAC breached the contract. Id.
7.

Actual Damages

Under Texas law, “[t]he normal measure of damages in a breach of contract case is the
benefit-of-the-bargain measure.” Mays v. Pierce, 203 S.W.3d 564, 577 (Tex. App.—Houston
[14th Dist.] 2006, pet. denied). Under this standard for measuring damages, “[a] nonbreaching
party is generally entitled to all actual damages necessary to put it in the same economic position
in which it would have been had the contract not been breached.” CQ, Inc. v. TXU Mining Co.,
L.P., 565 F.3d 268, 278 (5th Cir.2009) (citation and internal quotation marks omitted); Parkway

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Dental Assocs., P.A. v. Ho & Huang Props., L.P., 391 S.W.3d 596, 607 (Tex. App.—Houston
[14th Dist.] 2012, no pet.) (“The goal in measuring damages for a breach-of-contract claim is to
provide just compensation for any loss or damage actually sustained as a result of the breach.”);
Tacon Mech. Contractors, Inc. v. Grant Sheet Metal, Inc., 889 S.W.2d 666, 670 (Tex. App.—
Houston [14th Dist.] 1994), writ denied).
The benefit-of-the-bargain measure of damages “is not based upon the facts as they
actually occurred but instead is focused on what the injured party’s economic position would
have been if the contract had been fully performed.” Id. at 608. Benefit-of-the-bargain damages
are calculated by subtracting the value received by the non-breaching party from the value the
party expected to receive when the contract was made. See Arthur Andersen & Co. v. Perry
Equip. Corp., 945 S.W.2d 812, 817 (Tex. 1997) (“[B]enefit-of-the-bargain damages measure the
difference between the value as represented and the value received.”); DaimlerChrysler Motors
Co. v. Manuel, 362 S.W.3d 160, 180 (Tex. App.—Fort Worth 2012, no pet.) (“[T]he benefit of
the bargain measure . . . utilizes an expectancy theory and evaluates the difference between the
value as represented and the value received.”) (internal quotation marks and citation omitted).
When there is substantial conflict in the evidence as to the exact cost and whether items
are additional or included in the contractual scope of work, such inconsistencies and conflict do
not preclude recovery. Vance v. My Apt. Steak House of San Antonio, Inc., 677 S.W.2d 480, 484
(Tex. 1984). When “an injured party has produced the best evidence available, and if it is
sufficient to afford a reasonable basis for determining [its] loss, [it] is not to be denied a recovery
because the exact amount of the damage is incapable of ascertainment.” Id. The issue should
instead be decided by the fact-finder. Id.
i.

SWECS’s Damages

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While the Court concludes that SWECS breached the contracts, the Court also determines
SWECS substantially performed, and therefore, finds that the benefit-of-the-bargain measure of
damages applies to SWECS’s claim to recover for Unpaid Work. SWECS provided evidence
through the testimony of Josh Evans that the amounts charged by SWECS for the Unpaid Work
were reasonable and necessary.

The Court concludes SWECS is entitled to recover the

following amounts for Unpaid Work:
The Court FINDS SWECS is entitled to recover damages in the amount of $10,500.00 on
its breach of contract claim relating to base scope work.
The Court FINDS SWECS is entitled to recover damages in the amount of $7,366.75 on
its breach of contract claim relating to PO No. E31474-17125.
The Court FINDS SWECS is entitled to recover damages in the amount of $40,535.10 on
its breach of contract claim relating to Invoice No. SC126-30 and EWR-9.
The Court FINDS SWECS is entitled to recover damages in the amount of $6,461.13 on
its breach of contract claim relating to Invoice No. SC126-31 and EWR-8.
The Court FINDS SWECS is entitled to recover damages in the amount of $7,454.35 on
its breach of contract claim relating to Invoice No. SC126-32 and EWR-7.
The Court FINDS SWECS is entitled to recover damages in the amount of $12,740.41 on
its breach of contract claim relating to Invoice No. SC126-33 and EWR-6.
Accordingly, the Court FINDS an award of $85,057.74 in damages is necessary to put
IAC in the same economic position in which it would have been had the contracts not been
breached.

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ii.

IAC’s Damages

The Court FINDS that the proper measure of damages for IAC’s counterclaim is the
benefit-of-the-bargain measure.
The Court FINDS IAC is entitled to recover damages in the amount of $400.10 on its
breach of contract claim relating to overbilling of materials for EWR007 on the STX plants and
EWR003 on the WTX plants.
The Court FINDS IAC is entitled to recover damages in the amount of $23,661.03 on its
breach of contract claim relating to overbilling of labor for EWR004, EWR005, EWR007, and
EWR008 on the STX plants.
The Court FINDS IAC is entitled to recover damages in the amount of $67,348.64 on its
breach of contract claim relating to overbilling of labor for EWR001, EWR003, EWR004, and
EWR012 on the WTX plants.
The Court FINDS IAC is entitled to recover damages on its breach of contract and
indemnity claims in a reasonable amount of $2,000,000.00 negotiated in good faith under the
settlement agreement between IAC and Preferred Sands for the loss attributable to SWECS’s
breach as written off and/or deducted from IAC’s final billing to Preferred Sands.
Accordingly, the Court FINDS an award of $2,091,409.77 in damages is necessary to put
IAC in the same economic position in which it would have been had the contracts not been
breached.
8.

Calculation of Prejudgment and Post-judgment Interest

Prejudgment interest is calculated under state law in diversity cases. Boston Old Colony
Ins. Co. v. Tiner Assocs. Inc., 288 F.3d 222, 234 (5th Cir. 2002). In Texas, prevailing parties
receive prejudgment interest as a matter of course. Executone Info. Sys., Inc. v. Davis, 26 F.3d

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1314, 1329–30 (5th Cir. 1994). “Any credits or offsets due a defendant should be deducted from
the total damages awarded before—not after—prejudgment interest is calculated.” Pringle v.
Moon, 158 S.W.3d 607, 611 (Tex. App.—Fort Worth 2005, no pet.); Sisters of Charity of
Incarnate Word v. Dunsmoor, 832 S.W.2d 112, 118 (Tex. App.—Austin 1992, writ denied).
“Texas common law allows prejudgment interest to accrue at the same rate as postjudgment interest on damages awarded for breach of contract.” Int’l Turbine Servs., Inc. v.
VASP Brazilian Airlines, 278 F.3d 494, 499 (5th Cir. 2002).28 When, as here, an interest rate is
not specified in the parties’ contract, prejudgment interest is calculated based on the statutory
rate for post-judgment interest provided in § 304.003 of the Texas Finance Code. Id. Section
304.003 of the Texas Finance Code provides that the post-judgment interest rate is “five percent
a year if the prime rate as published by the Board of Governors of the Federal Reserve System
described by Subdivision (1) is less than five percent.” TEX. FIN. CODE ANN. § 304.003(c)(2).
The current prime rate is 3.5%, which is less than five percent. 29 Accordingly, the prejudgment
interest rate that the court will apply is five percent per annum. Prejudgment interest begins to
accrue on the earlier of: (1) 180 days after the date a defendant received written notice of a
claim, or (2) the date suit is filed. TEX. FIN. CODE ANN. § 304.104.
SWECS is entitled to recover prejudgment interest on the Unpaid Work claims for which
it prevailed. SWECS is therefore entitled to recover prejudgment interest at a rate of five percent

28

Prejudgment interest is a means to compensate a plaintiff for the loss of use of money owed as damages,
computed from the accrual of the plaintiff's claim to the date of judgment. Brainard v. Trinity Univ’l Ins. Co., 216
S.W.3d 809, 812 (Tex. 2006). It is recoverable by statute or under general principles of equity. Johnson & Higgins
of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 528 (Tex. 1998). For a breach-of-contract claim,
“prejudgment interest begins to accrue on the earlier of (1) 180 days after the date a defendant receives written
notice of a claim, or (2) the date suit is filed.” Id. at 531 (adopting the Legislature’s approach to prejudgment
interest and extending its application under the common law to all civil causes of action). “A claim ‘is a demand for
compensation or assertion of a right to be paid.’” DaimlerChrystler Motors Co. LLC v. Manuel, 362 S.W.3d 160,
194 (Tex. App.—Fort Worth 2012, no pet.).
29
“Selected Interest Rates (Daily) - H.15,” Board of Governors of the Federal Reserve System,
https://www.federalreserve.gov/releases/h15/.

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per annum on the $85,057.74 awarded for these claims. SWECS did not give written notice of
the claims for Unpaid Work until September 12, 2018. Accordingly, prejudgment interest on
these claims will be calculated from March 11, 2019, 180 days after SWECS’s written notice of
the claims.

Prejudgment interest on SWECS’s claims totals $13,469.42.

The Court will,

therefore, offset or subtract this amount and SWECS’s damages award totaling $98,527.16
(damages and prejudgment interest) from IAC’s damages award before prejudgment interest on
IAC’s counterclaim for breach of contract and indemnity is calculated.
Because IAC prevailed on its breach of contract and indemnity claim, IAC is entitled to
prejudgment interest on this claim after offset at a rate of five percent per annum. After offset,
IAC’s damages award totals $1,992,882.61 ($2,091,409.77 - $98,527.16). Prejudgment interest
on this amount will be calculated from the date IAC filed its counterclaim for indemnity on
August 31, 2020 (Doc. 45), to the date of judgment. Accordingly, IAC is entitled to $168,438.53
in prejudgment interest.
Regarding post-judgment interest, federal law applies on “any judgment in a civil case
recovered in a district court . . . including actions based on diversity of citizenship.” Travelers
Ins. Co. v. Liljeberg Enters., Inc., 7 F.3d 1203, 1209 (5th Cir.1993) (citation omitted). A court
awards post-judgment interest pursuant to 28 U.S.C. § 1961.

Accordingly, post-judgment

interest on IAC’s total award of $2,161,321.14 (damages and prejudgment interest) shall accrue
at the applicable federal rate, which is currently 2.10 percent30 per annum.
V.

CONCLUSION

It is hereby ORDERED that the Court GRANTS SWECS’s breach of contract claims
with respect to PO Nos. E30974-17112, E31474-17125, and Invoice Nos. SC126-30, SC126-31,

“Selected Interest Rates (Daily) - H.15,” Board of Governors of the Federal Reserve System,
https://www.federalreserve.gov/releases/h15/.
30

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SC126-32, and SC126-33 in the amount of $98,527.16 ($85,057.74 in actual damages and
$13,469.42 in prejudgment interest), subject to IAC’s right of offset. All other claims asserted
by SWECS, not previously disposed on partial findings under Federal Rule 52(c) (Doc. 105), are
DENIED and DISMISSED WITH PREJUDICE.
It is further ORDERED that the Court GRANTS IAC’s breach of contract and
indemnity counterclaims in the amount of $2,091,409.77; and DISMISSES WITH
PREJUDICE IAC’s counterclaims for negligence, breach of implied warranties, and fraudulent
liens. Because the amount awarded to IAC exceeds the amount awarded to SWECS, the Court
deducts and offsets the amount awarded to SWECS, which results in a total award of damages of
$1,992,882.61 to IAC, and calculates prejudgment interest using this sum.
It is therefore ORDERED that judgment shall be entered in favor of IAC in the amount
of $1,992,882.61 damages and $168,438.53 in prejudgment interest calculated at a rate of five
percent per annum. Post-judgment interest shall accrue on the total amount of $2,161,321.14
($2,091,409.77 in damages minus offset of $98,527.16, plus $168,438.53 in prejudgment
interest) awarded to IAC at the applicable federal rate of 2.10 percent per annum from the date of
this judgment until it is paid in full.

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It is finally ORDERED that any pending motions are DENIED as moot and the Court
will address the issue of attorney fees post-judgment pursuant to Federal Rule of Civil Procedure
54(d). Judgment will issue by separate document as required by Federal Rule of Civil Procedure
58.
It is so ORDERED.
SIGNED this 10th day of May, 2022.

DAVID COUNTS
UNITED STATES DISTRICT JUDGE

100