A City filed a lawsuit against the prime design firm (BKI”) that created the hydraulic model for a sewer System. The suit alleged the contractor breached its contract and committed gross negligence because the hydraulic model was defective. The city also sued an engineering subcontractor (Black & Veatch”). That subcontractor filed a motion to dismiss the action – arguing that no contractual relationship existed between it and the city. The trial granted the motion, but that was reversed on appeal, with the appellate court holding that despite wording in the subcontract stating there were no third-party beneficiaries, “the subcontract was clearly intended to benefit the owner of the project, the City.”
The court agreed with the City’s assertions that “the subcontract between [the Prime] and [the Sub] is specifically designed for [the Sub] to perform a subset of the project, as defined in the prime agreement between the City and [Prime]; therefore, the City is a third-party beneficiary of the subcontract.” City of Shreveport v. CDM Smith Inc., Court of Appeal of Louisiana, Second Circuit, No. 56,567-CA, 2025 La. App. LEXIS 2217 *; 2025 LX 529543; 56,567 (La.App.2 Cir. 11/19/25).
The operative provision of the subcontract between BKI and B&V, § 6.7.3, states:
“6.7.3. Nothing under this Agreement shall be construed to give any rights or benefits in this Agreement to anyone other than ENGINEER and CONSULTANT and all duties and responsibilities undertaken pursuant to this Agreement will be for the sole benefit of ENGINEER and CONSULTANT and not for the benefit of any other party.”
This was intended by the parties to reflect the intention that there would be no third party beneficiaries of the agreement.
In its lawsuit, the City alleged that the Prime and Sub breached their contract with the City because their subcontract contained and constituted a stipulation pour autrui in favor of the city. In other words, their subcontract contained and constituted an agreement that established a benefit for a third party — in this case, the City.
In its motion to dismiss, the Sub filed what is called an exception of no right of action, claiming that the City had no contract with the Sub and thus no right to bring a breach of contract claim against it. It argued that a stipulation for a third party’s benefit must make that intention manifestly clear, and that the agreement in this case explicitly states that “all obligations and benefits are not “for the benefit of any other party.”
The City argued that the nature of the subcontract between the Prime and its Sub shows that it was intended to benefit the City, and that it contains a stipulation pour autrui. The City argues that the agreement stipulates a benefit for the City.
In analyzing the facts and the arguments, the court stated:
“To determine whether contracting parties have provided a benefit for a third person the court should consider whether: (1) the stipulation for a third party is manifestly clear, (2) there is certainty as to the benefit provided to the third party, and (3) the benefit is not a mere incident of the contract.”
“The most basic requirement of a stipulation pour autrui is that the contract manifest a clear intent to benefit the third party; absent such a clear manifestation, a party claiming to be a third party beneficiary cannot meet his burden of proof. We find that the subcontract between [Prime] and [Sub] stipulates a benefit for the City, as it is specifically geared toward services that will benefit the City. The record shows that the subcontract in question references the “prime agreement” between the City and [Prime] numerous times and also mentions “the project” (the sewage system) numerous times. Specifically, the subcontract provides that [Sub] was furnished a copy of the City’s plans for the project, and would continue to receive drawings, specifications, schedules, and other materials that would be pertinent to [Sub] to provide its services under the subcontract. The record shows that the subcontract acknowledges that [Prime]’s ability to timely perform the project for the City under the prime agreement is dependent upon the timely performance of [Sub] ‘s services pursuant to the subcontract. Additionally, the subcontract conditions payment to [Sub] on payment by the City to [Prime]. The subcontract also provides that it will terminate automatically upon termination of the prime agreement.”
Considering these facts, the court concluded that a stipulation pour atrui exists in this case. The court stated:
“As detailed above, the record shows that the subcontract between [Prime] and [Sub] clearly manifests an intention to benefit the City. With numerous references to the City’s prime agreement with [Prime], and provisions in the subcontract that relate to the performance of obligations in furtherance of that prime agreement, [Sub]’s subcontract with [Prime] clearly confers a benefit on the City. Further, the second Joseph factor requires certainty as to the benefit to accrue to the beneficiary. Here, we find that the subcontract referred specifically to the project, which was the hydraulic model for the City. Finally, the third factor provides that the benefit is not a mere incident of the contract between [Sub] and [Prime]. There is no question that [Sub] was performing work on the project that benefited the City.”
For these reasons, the court concluded that the City was a third-party beneficiary of the subcontract.
About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk Report, Vol. 28, No. 4 (May 2026).
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