Construction Law Update – First Quarter 2025

When there are few published cases on a subject, those that are published take on greater significance.  That was something I learned after moving from California (with seemingly unlimited cases on every conceivable subject) to Arizona, with relatively few published cases on most subjects—at any level.  The result has been that cases published by the Arizona Supreme Court tend to endure. New Pueblo is such a case.

New Pueblo Constructors, Inc. v. State of Arizona, 144 Ariz. 95 (1985), published almost forty years ago, continues to be cited for many propositions by courts and counsel.  It, along with a handful of other cases, has shaped how courts, contractors, and public entities navigate issues related to contract interpretation, unforeseen conditions, and contractors’ entitlement to compensation.  It has also been used to expand concepts in public contracting in the state by relying (in the absence of state cases or statutes) on federal law for areas not addressed by any Arizona case or statute (for example, the concept of Cardinal Change).   We explore the significance of New Pueblo and its continued influence on construction law in Arizona.

The Facts of New Pueblo 

The case arose from a construction contract between New Pueblo Constructors (NPC) and the State of Arizona for the construction of a state office building. NPC encountered unforeseen conditions that required additional work and expenses beyond the original scope in the contract. The dispute centered on whether NPC was entitled to compensation for additional costs, despite the fact that the contract included provisions limiting recovery for extra work unless formal notice was provided.

The Arizona Supreme Court ruled in favor of NPC, stating that the contractor was entitled to compensation for the unforeseen conditions, even though the contract required formal notice. The Court based its ruling on what it called the “changed conditions” doctrine, emphasizing that parties to a contract must act in good faith and that contractors should not bear the burden of unexpected events that were beyond their control. It eventually awarded additional costs to NPC based, essentially, on a modified total cost theory, and rejected arguments that proper notice, required under the contract, was not given.

Key Legal Principles New Pueblo Is Used to Address

Changed Conditions Doctrine
One of the central tenets of the decision was the Court’s application of the “changed conditions” doctrine, which allows contractors to recover costs incurred due to unforeseen conditions that materially affect the scope of work. Arizona courts adopted this doctrine as a way to ensure fairness in construction contracts, recognizing that contractors should not be penalized for circumstances they could not anticipate or control.

Cardinal Change
The “cardinal change” doctrine addresses situations where a series of modifications to a contract cumulatively result in a change so significant that it effectively transforms the original agreement into a new one. This doctrine allows contractors to seek remedies, including contract termination or damages, when faced with substantial alterations beyond the original scope.

New Pueblo has been used to argue application of the cardinal change doctrine, because of the “changed conditions” basis for the Court’s decision. There has not been a published case addressing its application, but the analogy is obvious.  New Pueblo stated that courts look for guidance to the RESTATEMENT (SECOND) OF CONTRACTS, and decisions of federal boards of contract appeals and the federal courts in deciding public contract law issues that have not been addressed previously in a published Arizona decision.

Fairness and Good Faith in Contract Interpretation
The Arizona Supreme Court’s ruling reinforced the principle that contracts should be interpreted fairly and in good faith. It made clear that even when a contract contains specific provisions limiting the recovery of additional costs, courts may still find that fairness dictates that contractors are entitled to compensation when unforeseen conditions arise. This focus on fairness has become a critical aspect of construction law in Arizona, helping to balance the interests of contractors and public entities.

Impact on Government Contracts
The New Pueblo case also has significant implications for public contracts. It addressed the relationship between private contractors and state entities, a critical issue in public construction projects. Government contracts often include strict guidelines regarding the notification of extra work or cost increases. However, New Pueblo made it clear that public entities could not impose unreasonable restrictions on contractors who face unexpected circumstances, particularly when the contractor had no prior knowledge of the conditions. This case set the stage for future decisions regarding the rights of contractors working on public projects in Arizona.

The Enduring Impact of New Pueblo Constructors

Although construction law in Arizona has evolved over the years, mainly through lower courts,  the principles set forth in New Pueblo continue to play a pivotal role in shaping how courts interpret construction contracts and resolve disputes. Several aspects of the case have had long-lasting effects on Arizona law:

Guidance on Contract Disputes
New Pueblo has been cited in numerous cases where contractors seek compensation for additional costs due to unforeseen conditions. The case continues to be a guiding precedent for resolving issues of contract interpretation and equitable adjustments in construction projects. It has been cited to support contractors’ claims when changes to the work arise unexpectedly, offering a framework for resolving disputes over additional costs and scope changes.

Importantly, New Pueblo has been used to support many other concepts, including the right of the awardee to respond to a bid protest.  In a 2024 response to a bid protest, a firm relied on New Pueblo for that right:

“Although the pertinent Arizona regulations are silent on whether the contract awardee may respond to a protest, in the absence of state law, Arizona courts seek guidance from federal law when applying Arizona procurement statutes and regulations. See Ariz.’s Towing Pros., Inc. v. State, 196 Ariz. 73, 76–78 (App. 1999) (relying on federal law in considering state bid protest); see also New Pueblo Constructors, Inc. v. State, 144 Ariz. 95, 101 (1985) (“In the absence of controlling state authority, state courts naturally look for guidance in public contract law to the federal court of claims and the federal boards of contract appeals.”).”

Influence on Contract Drafting
The New Pueblo decision has influenced how construction contracts are drafted in Arizona. Contractors and legal professionals have learned to include more detailed clauses addressing unforeseen conditions, the allocation of risks, and provisions related to compensation for extra work. While the decision provides contractors with certain rights, it also emphasizes the need for clear and precise contract terms to minimize the risk of disputes. Contractors now focus on ensuring that their contracts outline a clear mechanism for handling changes to work scope and costs.

Promoting Fairness in Construction Projects
The New Pueblo case continues to serve as a reminder that construction contracts must be interpreted and enforced in a way that is fair to all parties. The Arizona courts have followed this principle in subsequent decisions, ensuring that contractors are not unfairly burdened by risks outside their control. The case has been cited as an example of how courts can strike a balance between enforcing the terms of a contract and ensuring that unforeseen events do not unduly disadvantage one party.

Conclusion

New Pueblo remains one of the most important and influential decisions in Arizona construction law. Its emphasis on fairness, the changed conditions doctrine, and the interpretation of government contracts has had a lasting impact on the industry. For contractors, public entities, and legal professionals in Arizona, understanding the principles laid out in New Pueblo is essential to navigating construction contract disputes effectively. The case continues to serve as a key point of reference and a reminder of the need for fairness and good faith in construction project administration. As Arizona’s construction landscape evolves, the foundational principles of New Pueblo will undoubtedly continue to guide the resolution of legal issues in the construction industry.

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On October 10, 2024, the California Court of Appeal, Fourth District, Division One, issued a decision in CBRE v. Superior Court (Johnson) 102 Cal.App.5th 639 (2024),[1] providing crucial clarification regarding the scope, application, and limitations of the Privette doctrine.[2] This ruling significantly impacts property owners, general contractors, subcontractors, and legal professionals by delineating the responsibilities and liabilities associated with workplace injuries involving independent contractors.

I. Evolution and Framework of the Privette Doctrine

In California, a worker’s exclusive remedy for a jobsite injury is through the worker’s compensation scheme, and absent certain enumerated circumstances the worker may not sue the employer.  The Privette doctrine originates from the California Supreme Court’s decision in Privette v. Superior Court, 5 Cal.4th 689 (1993), which extends this exclusive remedy rule and generally shields hirers of independent contractors from liability for injuries sustained by contractors’ employees.[3] Privette operates on the premise that independent contractors possess superior expertise to manage workplace safety, thereby shifting responsibility and liability for injury prevention onto the contractors themselves.[4]

California courts have steadily expanded and refined the doctrine over the past three decades, with key cases delineating important exceptions. For example, in Toland v. Sunland Housing Group, 18 Cal.4th 253 (1998), the California Supreme Court reinforced Privette’s protection unless a hirer’s active control contributed to an employee’s injuries.[5] The court further clarified the doctrine in Hooker v. Department of Transportation, 27 Cal.4th 198 (2002), establishing that a hirer could only be liable if it retained control and exercised it in a manner that affirmatively contributed to the worker’s injury.[6] Similarly, in SeaBright Insurance Co. v. US Airways, 52 Cal.4th 590 (2011), the Court reaffirmed that the duty to maintain workplace safety rests primarily on independent contractors.[7]

The concealed hazard exception, articulated in Kinsman v. Unocal Corp., 37 Cal.4th 659, 671 (2005),  holds hirers liable if they knowingly fail to warn contractors of hidden hazards that contractors could not reasonably discover independently.[8] Meanwhile, the retained-control exception developed through McKown v. Wal-Mart Stores, Inc., 27 Cal.4th 219 (2002)  imposed liability where hirers supplied defective equipment directly influencing the contractor’s work methods.[9]

The California Supreme Court’s decision in Gonzalez v. Mathis, 12 Cal.5th 29 (2021), further solidified the narrow scope of Privette exceptions, highlighting the limited circumstances in which hirers may lose immunity.[10]

II. Background and Procedural History of CBRE v. Johnson

The central issue in CBRE v. Superior Court was whether the concealed hazard or retained control exceptions to Privette applied, thereby subjecting the general contractors to potential liability despite their general immunity under Privette.[11]

The underlying facts arose from a tenant improvement project taking place at a San Diego office building owned by Property Reserve, Inc. (“PRI”) and managed by CBRE. PRI contracted with Crew Builders (“Crew”) as the general contractor for the project, and Crew subcontracted electrical work to PCF Electric (“PCF”).[12] While performing his electrical duties at the site, Plaintiff Johnson suffered severe injuries after falling from a ladder due to contacting an energized electrical wire that had been incorrectly labeled as carrying 120 volts, when in fact, it carried a much higher voltage of 277 volts.[13]

Significantly, PRI and CBRE explicitly instructed Crew to proceed with the construction project without obtaining legally required building permits.[14] As a direct consequence of this decision, the project proceeded without the mandatory safety inspections and regulatory oversight specifically designed to detect and mitigate potential workplace hazards.[15] Johnson subsequently filed a lawsuit alleging negligence and premises liability against PRI, CBRE, Crew, and PCF, arguing that PRI’s and CBRE’s decision to bypass permitting processes had contributed significantly to the hazardous conditions leading to his injuries.[16]

In response to Johnson’s lawsuit, PRI and CBRE moved for summary judgment, invoking the Privette doctrine as their defense. Specifically, they argued that as hirers, they were immune from liability under Privette, as responsibility for workplace safety and hazard identification rested with PCF as the independent contractor possessing specialized expertise.[17] The Superior Court denied PRI and CBRE’s summary judgment motion, holding that there existed genuine factual disputes regarding whether PRI and CBRE had delegated sufficient control to Crew and PCF or retained control in a manner potentially triggering exceptions to the Privette doctrine.[18] The denial was based primarily on factual uncertainties surrounding PRI’s and CBRE’s involvement in the decision to forego permitting requirements and the corresponding effect on jobsite safety protocols.[19] Following this adverse ruling, PRI and CBRE sought appellate review through a writ of mandate, asking the California Court of Appeal to reassess whether their actions constituted retained control or created a concealed hazard under Privette’s exceptions.[20]

III. Court of Appeal’s Analysis of Concealed Hazard Exception

On appeal, the California Court of Appeal reversed the Superior Court’s decision, holding that neither the concealed hazard nor the retained control exceptions applied, and therefore PRI and CBRE were entitled to summary judgment under Privette immunity.[21]

In its analysis regarding the concealed hazard exception, which stems from Kinsman v. Unocal Corp., the appellate court considered whether PRI and CBRE knew about, yet failed to disclose, a hidden hazard unknown and not discoverable through reasonable diligence by the independent contractor.[22] Specifically, the court assessed the issue of the incorrectly labeled energized wire and found that the mislabeling, while misleading, was nevertheless discoverable through standard industry practices.[23]  PCF’s site superintendent provided testimony establishing it was common practice and mandatory protocol in electrical work to independently verify circuit voltages using standard equipment, such as voltage meters or “hot sticks,” regardless of labeling accuracy.[24]  Thus, the appellate court determined the mislabeled wire did not constitute a legally actionable concealed hazard, as PCF could have identified the energized condition through reasonable diligence. The court reinforced this reasoning by referencing Delgadillo v. Television Center, Inc., 20 Cal.App.5th 1078 (2018) clarifying that contractors bear primary responsibility for actively inspecting and identifying potential workplace hazards inherent to their specialized trades.[25]

Turning to the retained control exception, the appellate court applied principles articulated by the California Supreme Court in Hooker v. Department of Transportation and further refined in Sandoval v. Qualcomm Inc., 12 Cal.5th 256 (2021).[26] Under this framework, a hirer is liable only if it retains control and exercises it affirmatively in a way that contributes directly to the injuries sustained by the contractor’s employee.[27] Here, the appellate court found that PRI’s and CBRE’s decision to forego permits, though troubling, constituted a passive omission rather than affirmative action controlling PCF’s methods of performing its electrical work.[28] The court explicitly distinguished PRI’s and CBRE’s conduct from previous cases where hirers had provided defective equipment (McKown v. Wal-Mart Stores, Inc.), directly prevented safety measures (Ray v. Silverado Constructors, 98 Cal.App.4th 1120 (2002)), or actively directed unsafe work methods (Browne v. Turner Construction Co. 127 Cal.App.4th 1334 (2005)).[29] Thus, the appellate court concluded that PRI’s and CBRE’s passive omission of permitting did not rise to the level of retained affirmative control required under Privette’s retained control exception.[30]

In dissent, Justice Kelety sharply criticized the majority’s analysis, contending that the decision improperly permitted property owners and managers to avoid regulatory oversight by excluding permitting and compliance requirements from contractors’ scopes of work.[31] Justice Kelety argued that PRI and CBRE’s explicit instructions to bypass permits actively removed essential regulatory safety measures, effectively undermining the very purpose of these regulations and raising serious public policy concerns regarding workplace safety and accountability.[32]

A. Comparative Analysis with Relevant Precedents

Analyzing CBRE in the context of earlier Privette cases helps clarify the court’s reasoning. For example, the appellate court distinguished CBRE from McKown, where the hirer provided defective equipment directly affecting operational methods, clearly influencing safety outcomes.[33] Similarly, in Ray, a hirer specifically prevented a contractor from implementing safety measures, directly contributing to injury.[34] Here, however, the court emphasized the lack of direct interference, categorizing the omission of permits as passive rather than affirmative interference.[35]

B. Regulatory Compliance vs. Judicial Doctrines
The CBRE decision highlights the judiciary’s cautious approach toward imposing civil liability based solely on regulatory noncompliance. Although Petitioners clearly omitted obtaining required permits, the majority deemed this insufficient for Privette exceptions, distinguishing regulatory violations from affirmative operational control.[36] Nevertheless, Justice Kelety’s dissent underscores significant judicial discomfort, arguing that the majority’s ruling incentivizes regulatory noncompliance by insulating property owners from liability consequences, creating potential safety risks.[37]

C. Industry and Policy Reactions
Industry response to CBRE has been varied, with contractors and safety advocates raising concerns that the decision might incentivize owners and contractors to evade safety regulations without fear of liability.[38] Conversely, owners and insurers have applauded the decision for reaffirming the importance of clearly documented contractor responsibilities, reinforcing Privette’s protections.[39] Such divided responses suggest potential legislative intervention, especially concerning clarity around safety obligations in contracts.

D. Potential Legislative Responses to CBRE
In response to CBRE, California lawmakers may contemplate statutes explicitly requiring documentation of safety and permitting responsibilities in construction contracts.[40] Clarification regarding the boundaries of hirer responsibility and liability in contexts of regulatory noncompliance could be forthcoming, particularly if CBRE leads to significant industry outcry or adverse safety impacts.

IV. Practical Risk Management Strategies Post-CBRE

A. To mitigate risks following CBRE, stakeholders should:

1. Clearly document safety responsibilities and explicitly allocate permit and regulatory obligations within contracts.[41]
2. Ensure robust internal contractor safety protocols independent of hirer oversight.
3. Educate all parties on best practices regarding safety procedures, emphasizing contractor autonomy and diligence to prevent injuries irrespective of hirer instructions.[42]

B. Lessons for Litigators

For litigators, CBRE offers valuable strategic lessons:

1. Plaintiffs must show concrete, affirmative steps taken by property owners significantly influencing workplace operations to avoid Privette immunity.[41]
2. Defendants should meticulously document operational delegation, demonstrating minimal involvement to bolster immunity under Privette.[43]
3. Both parties should carefully examine how judicial interpretation of Privette interacts with regulatory compliance requirements.[44]

V. Conclusion

The CBRE decision is a pivotal development within Privette jurisprudence, refining boundaries concerning hirers’ liability, particularly regarding retained control and concealed hazard exceptions. By strongly emphasizing contractor responsibility for hazard identification and management, the court effectively reinforced Privette’s foundational principles while delineating narrow exceptions.

Justice Kelety’s dissent highlights significant concerns around regulatory compliance, potentially foreshadowing legislative or judicial reconsideration of the interplay between safety regulation adherence and civil liability frameworks.45 Thus, property owners, contractors, legal professionals, and insurers must proactively reassess their contractual obligations, safety management strategies, and litigation approaches in response to CBRE’s clarified standards, navigating the complex but clearer Privette landscape the decision now defines.

Footnotes

1. CBRE v. Superior Court (Johnson), 102 Cal.App.5th 639 (2024).
2. Privette v. Superior Court, 5 Cal.4th 689, 693 (1993).
3. Id.
4. Id.
5. Toland v. Sunland Housing Group, Inc., 18 Cal.4th 253, 258 (1998).
6. Hooker v. Dep’t of Transp., 27 Cal.4th 198, 202 (2002).
7. SeaBright Ins. Co. v. US Airways, 52 Cal.4th 590, 598 (2011).
8. Kinsman v. Unocal Corp., 37 Cal.4th 659, 671 (2005).
9. McKown v. Wal-Mart Stores, Inc., 27 Cal.4th 219, 225 (2002).
10. Gonzalez v. Mathis, 12 Cal.5th 29, 35 (2021).
11. CBRE, 102 Cal.App.5th at 645.
12. Id. at 645-646.
13. Id. at 646.
14. Id. at 646-647.
15. Id. at 647.
16. Id. at 647-648.
17. Id. at 648.
18. Id. at 648-649.
19. Id. at 649.
20. Id. at 649-650.
21. Id. at 650-651.
22. Delgadillo v. Television Center, Inc., 20 Cal.App.5th 1078, 1084 (2018).
23. Hooker v. Dep’t of Transp., 27 Cal.4th 198, 204 (2002).
24. Sandoval v. Qualcomm Inc., 12 Cal.5th 256, 263 (2021).
25. CBRE, supra, at 651-654.
26. Id. at 658-660 (Kelety, J., dissenting).
27. Id. at 660-662.
28. McKown, 27 Cal.4th at 225.
29. Ray v. Silverado Constructors, 98 Cal.App.4th 1120, 1132 (2002).
30. Browne v. Turner Constr., 127 Cal.App.4th 1334, 1342 (2005).
31. CBRE, supra, at 655-656.
32. Id. at 657-658.
33. Id. at 658.
34. Id. at 660-662 (Kelety, J., dissenting).
35. Id. at 662-664.
36. Id. at 664-666.
37. Id. at 667-669.
38. Id. at 670-672.
39. Id. at 673-675.
40. Id. at 676-678.
41. Id. at 679-681.
42. Id. at 682-684.
43. Id. at 685-687.
44. Id. at 688-690.
45. Id. at 691-693.

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• Meal & Rest Break Laws
• Overtime Laws
• Statues of Repose

Below we have listed all the matrices included in the package: 

• Anti-Indemnity Statues
• Architects/Engineers/Land Surveyors Claims and Settlement Reporting Requirements
• Bad Faith Cause of Action
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• Directly Assessed Punitive Damages
• Employment Record Subpoena Responses
• Insurance Carriers’ Record Retention Requirements
• Licensing, Examination & Continuing Education Requirements for Independent Claims Adjusters
• Material Breach/First to Breach
• Meal & Rest Break Laws
• Offer of Judgment of Provisions
• Overtime Laws
• Patient Record Subpoena Responses
• Right to Independent Counsel
• Right to Repair Laws
• Statutes of Limitations
• Statues of Repose

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GRSM’s construction attorneys focus their practice on the comprehensive range of legal service required by all participants in the construction industry – architects, engineers, design professionals, design joint ventures, owners, developers, property managers, general contractors, subcontractors, material suppliers, product manufacturers, lenders, investors, state agencies, municipalities, and other affiliated consultants and service providers.

We serve clients who design, develop, or build all types of structures, including commercial buildings, single and multifamily residential projects, industrial facilities, universities, hospitals, museums, observatories, amusement parks, hotels, shopping centers, high-rise urban complexes, jails, airports, bridges, dams, and power plants. We also have been involved in projects for tunnels, freeways, light rail, railway stations, marinas, telecom systems, and earth-retention systems. Our experience includes private, public, and P3 construction projects.

If you have questions about this issue of the Construction Law Update or our nationwide construction practice, click here to visit our practice group page or contact partner Dan Evans.

Daniel E. Evans
Gordon Rees Scully Mansukhani
555 Seventeenth St.
Suite 3400
Denver, CO 80202
(303) 200-6863
deevans@grsm.com

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