A recent Louisiana appellate decision highlights an important lesson for design professionals and engineering subcontractors: contractual language disclaiming third-party beneficiaries may not control when the substance and structure of the agreement demonstrate a clear intent to benefit the project owner.
The Dispute: Allegedly Defective Hydraulic Modeling
In City of Shreveport v. CDM Smith Inc., the Louisiana Second Circuit Court of Appeal considered whether a city could pursue a breach-of-contract claim against an engineering subcontractor despite an express provision in the subcontract disclaiming third-party beneficiary rights.
The City of Shreveport filed suit against the prime design firm, BKI, alleging that the firm breached its contract and committed gross negligence by providing a defective hydraulic model for the City’s sewer system. The City also sued Black & Veatch (B&V), an engineering subcontractor involved in the project.
B&V moved to dismiss the City’s contract claim, arguing that it had no contractual relationship with the City and that the City therefore had no right of action against it for breach of contract.
The trial court granted the motion. On appeal, however, the Louisiana Second Circuit reversed, concluding that the subcontract between BKI and B&V contained a stipulation pour autrui—Louisiana’s civil-law doctrine permitting a contracting party to stipulate a benefit in favor of a third person.
The court held that, notwithstanding the subcontract’s express disclaimer of third-party beneficiary rights, the agreement was clearly intended to benefit the City.
City of Shreveport v. CDM Smith Inc., No. 56,567-CA, 2025 La. App. LEXIS 2217, 2025 LX 529543 (La. App. 2 Cir. Nov. 19, 2025).
The Contractual Language: An Express Disclaimer of Third-Party Benefits
The subcontract between BKI and B&V included an express provision addressing third-party rights. Section 6.7.3 stated:
“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.”
The provision was intended to reflect the parties’ agreement that no third party would be a beneficiary of the subcontract.
B&V relied on this language in support of its motion to dismiss. It argued that Louisiana law requires a manifestly clear intent to benefit a third party and that the subcontract expressly negated that intent. Because the City was not a party to the subcontract, B&V maintained that the City could not assert a breach-of-contract claim against it.
The City took a different view. It argued that the subcontract’s substantive provisions demonstrated that B&V was engaged to perform a defined portion of the overall project contemplated by the prime agreement between the City and BKI. In the City’s view, the subcontract was specifically structured to advance the prime agreement’s objectives and therefore established a benefit in the City’s favor.
The dispute thus presented a fundamental question: Can a court find an enforceable third-party benefit when the subcontract expressly disclaims third-party beneficiary rights?
Louisiana’s Three-Part Test for a Stipulation Pour Autrui
In evaluating the City’s claim, the appellate court applied the three factors used to determine whether a contract establishes a stipulation pour autrui:
- Manifest intent: Is the stipulation in favor of a third party manifestly clear?
- Certainty of benefit: Is there certainty as to the benefit to be provided to the third party?
- More than an incidental benefit: Is the benefit something other than a mere incident of the contract between the contracting parties?
The court emphasized that a clear manifestation of intent to benefit the third party is the most basic requirement. Without that manifestation, a party seeking third-party beneficiary status cannot satisfy its burden of proof.
Importantly, the court’s analysis focused on the subcontract as a whole and the relationship between the subcontracted services and the City’s underlying project.
Why the Court Found That the Subcontract Benefited the City
The court identified several provisions and circumstances demonstrating that the subcontract was closely tied to the City’s project.
1. The subcontract repeatedly referenced the prime agreement
The subcontract referred numerous times to the prime agreement between the City and BKI, as well as to the project itself—the City’s sewer system.
These references supported the conclusion that B&V’s work was not an independent undertaking unrelated to the City’s contractual objectives. Instead, the subcontract contemplated services that formed part of the work BKI had undertaken to perform for the City.
As the court explained, the subcontract was “specifically geared toward services that will benefit the City.”
2. B&V received the City’s project documents
The record showed that B&V had been furnished with the City’s plans for the project and would continue to receive drawings, specifications, schedules, and other materials relevant to performing its subcontracted services.
These provisions connected B&V’s work directly to the City’s project requirements. The court viewed that connection as evidence of the intended benefit, rather than merely an incidental advantage arising from the contractual relationship between BKI and B&V.
3. BKI’s performance depended on B&V’s timely work
The subcontract acknowledged that BKI’s ability to perform the project for the City on time under the prime agreement depended on B&V’s timely performance of its subcontracted services.
This dependency was significant. B&V’s obligations were designed to support BKI’s performance of its commitments to the City, establishing a direct relationship between the subcontracted work and the City’s contractual objectives.
4. Payment depended on the City’s payment to BKI
The subcontract also conditioned payment to B&V on payment by the City to BKI.
Although payment provisions alone do not necessarily establish third-party beneficiary status, this provision further demonstrated the close financial and operational connection between the prime agreement and the subcontract.
5. The subcontract automatically terminated with the prime agreement
The subcontract provided for automatic termination upon termination of the prime agreement.
This provision further tied B&V’s engagement to the City’s underlying project. The subcontract was not structured as an independent arrangement that would continue regardless of the prime agreement; its existence was linked to the agreement governing BKI’s performance for the City.
Taken together, these provisions persuaded the court that the subcontract was designed to facilitate performance of the City’s project and that the benefit to the City was neither speculative nor incidental.
The Appellate Court’s Conclusion
Applying the three-part test, the court concluded that the subcontract established a stipulation pour autrui in favor of the City.
The court explained that the subcontract’s numerous references to the City’s prime agreement, together with provisions requiring B&V to perform services in furtherance of that agreement, demonstrated an intent to benefit the City. The project was specifically identified as the hydraulic model for the City, satisfying the requirement that the benefit be sufficiently certain. Finally, B&V’s work directly supported the project and therefore conferred more than a merely incidental benefit on the City.
The court ultimately held that the City was a third-party beneficiary of the subcontract.
The decision reversed the trial court’s dismissal of the City’s action against B&V on the no-right-of-action ground. It did not, by itself, establish that B&V had breached the subcontract, that the hydraulic model was defective, or that B&V was liable for the City’s alleged damages. Those substantive issues are distinct from the threshold question of whether the City could assert the contract claim.
Key Takeaways for Design Professionals and Engineering Subcontractors
The decision offers several practical lessons for parties drafting and administering engineering and design subcontracts.
1. A disclaimer of third-party beneficiary rights is not necessarily dispositive.
Section 6.7.3 expressly stated that the subcontract’s benefits were for BKI and B&V alone. Nevertheless, the court concluded that the agreement, considered as a whole, clearly manifested an intent to benefit the City.
The decision underscores the potential risk of relying exclusively on boilerplate disclaimer language when the remaining provisions of an agreement point in a different direction.
2. The entire agreement matters.
Courts may examine the practical and contractual relationship between a subcontract and the underlying prime agreement. References to the owner’s plans, specifications, schedules, project requirements, payment arrangements, and the prime agreement’s duration may collectively support a finding of intended third-party benefit.
3. Project owners may have rights even without direct contractual privity.
The decision illustrates that the absence of a direct contract between an owner and a subcontractor does not necessarily foreclose a contract claim under Louisiana law. Where the requirements for a stipulation pour autrui are satisfied, the owner may qualify as a third-party beneficiary of the subcontract.
4. Contract drafting should align the disclaimer with the substantive obligations.
Parties seeking to limit third-party beneficiary rights should review the entire subcontract—not just the disclaimer—to identify provisions that could support a contrary interpretation. The agreement’s stated purpose, defined scope of work, references to the owner, and relationship to the prime agreement should be considered together.
5. Third-party beneficiary status is different from liability on the merits.
A finding that an owner is a third-party beneficiary establishes a potential basis for enforcing contractual rights; it does not automatically establish breach, negligence, causation, or damages. Those issues require separate analysis and proof.
Conclusion
City of Shreveport v. CDM Smith Inc. is a useful reminder that contract interpretation depends on more than a single provision viewed in isolation. Although the BKI–B&V subcontract expressly disclaimed third-party beneficiary rights, the Louisiana Second Circuit found that the agreement’s substantive terms clearly connected B&V’s services to the City’s project and established a sufficiently certain, nonincidental benefit.
For design firms, engineering consultants, and their subcontractors, the practical message is clear: If the parties intend to exclude third-party beneficiary rights, the contract’s operative provisions should be consistent with that intention. A disclaimer may not provide the protection the parties expect when the agreement, read as a whole, demonstrates that the subcontractor’s work was specifically structured to benefit the project owner.
Case citation: City of Shreveport v. CDM Smith Inc., No. 56,567-CA, 2025 La. App. LEXIS 2217, 2025 LX 529543 (La. App. 2 Cir. Nov. 19, 2025).
For additional information, please click HERE.