The California Supreme Court in LAUSD v. Great American Insurance Company; Hayward Construction Company (2010) 49 Cal.4th 739, held that where the contractor can establish that a public entity “knew material facts concerning the project that would affect…” the contractor’s ” bid or performance and failed to disclose those facts…” the public entity may be required to compensate the contractor for the extra work or materials necessary for the completion of such work.

Prior to this case there was a conflict of authority between the Appellate Courts as to whether a contractor needed to prove intentional concealment by the public entity in order to recover on a claim for nondisclosure of material facts. The Supreme Court disagreed with the First and Sixth Appellate Districts that required that the contractor prove the intentional concealment and held in line with the Third Appellate District in the Welch v. State of California (1983) 139 Cal.App.3rd 546, 556, decision which rejected a requirement of affirmative misrepresentation or active concealment.

The Supreme Court also cited 1 Acret, Cal. Construction Contracts and Disputes, (3rd ed 2006) § 4.55, p. 393 which “suggested that this conflict in the case law ‘can perhaps be reconciled by’ the following ‘careful elucidation’: ‘Non disclosure of a material fact is itself an affirmative act sufficient to constitute active misrepresentation.'” The Court went on to further cite Acret stating that “if this reasoning is not persuasive, Welch appears to be the better authority. Jasper appears to be contrary to the weight of authority across the United States, at least insofar as it limits liability to instances of positive misrepresentation.” Ibid.

Thus, it is clear that public agencies now have a duty to disclose material facts to contractors if those facts would affect the contractors bid or performance or be held liable for additional compensation to the contractor if he can prove the public agency knew the material facts.