delivered the Opinion of the Court.
In this action for breach of contract, we are asked to determine whether a construction contractor may recover lost profit damages from the breaching party that are attributable to impaired bonding capacity. Petitioner, Denny Construction Inc. ("Denny"), and Respondent, the City and County of Denver acting through its Board of Water Commissioners (the "Board"), brought breach of contract claims against each other after the Board declared Denny in default of a contract for the construction of the Board's new headquarters. After the declaration of default, Denny's surety reduced Denny's bonding capacity, and later refused to underwrite bonds for Denny at all. Denny was unable to obtain bonds from another surety, and it alleged that its lack of bonding capacity prevented it from continuing to bid on public works contracts, which accounted for approximately half of Denny's business at the time.
A trial was held, and the jury found that the Board, not Denny, breached the contract. The jury went on to award Denny $845,000 in lost profits due to impaired bonding capacity.
The court of appeals reversed the trial court, See Denny Constr., Inc. v. City & County of Denver,
We now reverse the court of appeals. First, we hold that lost profits due to impaired bonding capacity are not speculative as a matter of law. Instead, we find that claims of lost profits due to impaired bonding capacity, like all claims for lost profits, must be established with reasonable certainty. Second, we find that the court of appeals applied an incorrect legal standard to determine whether the lost profits in this case were reasonably foreseeable. The question is not, as the court of appeals held, whether the Board actually knew that Denny would suffer lost profits due to impaired bonding capacity, but whether it knew or should have known that such loss would probably occur. We therefore reverse the court of appeals, *744 and remand the case for further proceedings consistent with this opinion.
I.
Denny is a general contractor that has worked on both private and public construction projects in the Denver area for over thirty years. The Board is a political subdivision of the State of Colorado, and it provides water to the Denver metropolitan area. Sometime during 2001, the Board began planning to build a new headquarters for its operations, and after conducting a public bidding process, the Board awarded Denny a contract to build a facility in Fraser, Colorado for $8.5 million. This project came to be known as the Moffat Project.
The contract called for completion of the facility by July 2003. However, Denny repeatedly requested extensions, citing delays due to weather. The Board extended the deadline to October 2003 because of the weather delays, but did not grant additional extensions sought by Denny. Denny failed to meet the October deadline, and the work was still not fully completed when the Board took occupancy of the facility in November 2008.
Because of the unfinished work, the Board withheld around $260,000 of the contract price and ultimately declared Denny in default in April 2004. The Board also filed a claim with Denny's surety, Insurance Company of the West ("ICW"). As a result of the Board's claim, ICW decreased Denny's bonding capacity, 1 and in August 2004, stopped underwriting bonds for Denny altogether. One of Denny's subcontractors subsequently filed suit against Denny, the Board, and others, seeking payment of funds withheld by the Board. Denny and the Board filed claims against each other for breach of contract. All claims settled before trial, with the exception of these claims.
A jury trial was held from April 25th through May 5th, 2005. Denny argued that it had substantially completed the contract, that the contract permitted delays due to inclement weather, and that the Board breached the contract by not granting additional extensions due to bad weather. The Board countered that the contract only required time extensions due to "abnormal" weather, and that the further extensions sought by Denny-attempting to extend the completion date beyond October 2008-were unwarranted.
As to damages, Denny presented evidence-including financial statements, lists of contracts, and other documents, as well as testimony from individuals involved in the Moffat Project-in support of its claim that it had lost profits as a result of the Board's declaring default and filing a bond claim. This evidence demonstrated that Denny was an established and generally profitable construction company and more specifically, that during the years 2000 through 20083, about half its revenues came from public works projects that required bonds. However, profitability declined after the Board declared default on the Moffat Project. Denny's owner, Bill Denny, attributed this decline to the Board's declaration of default. In particular, he testified that Denny began increasing its public works projects in 1995 and that Denny did work for a variety of public entities in Colorado. He also testified that Denny had not been declared in default on prior projects. However, he stated that after the Board's declaration of default and filing of a bond claim, Denny could no longer secure the bonds necessary to bid on public works projects. Bill Denny further testified that such projects were available and that he would have bid on them if he could have obtained the necessary bonds.
Two individuals familiar with sureties also testified for Denny. Kevin Lorenz, an underwriter employed by ICW, said that prior *745 bond claims are an important factor in the decision whether to underwrite additional bonds for a contractor. He noted that Denny had not been the subject of any bond claims prior to the Moffat Project, and he testified that the Board's claim was primarily responsible for ICW's decision to reduce and eventually terminate Denny's bonding capacity. Steve Walker, a bonding agent who helped Denny obtain bonds, testified that after the Board's bond claim, ICW and three other sureties refused to underwrite bonds for Denny. Walker sent a letter to Denny stating that Denny probably would not be able to obtain bonds because of the issues concerning the Moffat Project.
Denny's damages expert, Jack Harris, testified that the loss of bonding capacity caused a significant drop in Denny's profits. Harris explained how he had analyzed data from 2000 through 2005, including market and industry conditions, Denny's financial statements and bidding history, the number of public works contracts typically won by Denny, and the profits from those contracts. Based on this analysis, Harris calculated that Denny had incurred pre-trial lost profits of $537,525 and that Denny would incur post-trial lost profits of an additional $1,025,204. The Board presented no expert testimony of its own, instead relying solely on its cross-examination of Denny's expert.
Denny also called some of the Board's employees who had worked on the Moffat Project. Michael Leister, the Board's chief of construction management, had been involved in the Board's construction projects for twenty-two years. Leister testified that minimum bonding capacity is required to obtain public works contracts and that the Board would not even consider bids from contractors who did not have the requisite bonding capacity. John Diebel, the Board's director of engineering, had been with the Board for thirty-one years, and had spent thirteen years overseeing the construction of the Board's various facilities. Diebel agreed with Leister, and added that a contractor's bonding capacity was an important factor in dealing with public entities. When later called by the Board, Diebel testified that after consulting with other Board personnel he made the final decision to declare Denny in default. Both Diebel and Leister stated that the Board evaluates a contractor's past performance on similar construction projects before awarding a contract. They both also indicated that they were familiar with the role of sureties in public works projects and that they had taken classes on that subject.
The evidence presented at trial established that the Board was generally familiar with Denny's financial condition and profitability based upon the information contained in Denny's prequalification application. Leister testified that, as part of the prequalification process, the Board examined both the contractor's bonding capacity as well as its past performance with similar projects. Denny also demonstrated that these similar pro-jeets-that is, those requiring public bonds-totaled close to half its business over the past decade.
The jury returned a verdict for Denny, concluding that the Board, not Denny, breached the contract. The jury went on to award Denny $1,063,000 in damages, which included $380,000 for pre-trial lost profits and $465,000 for post-trial lost profits. 2
On appeal, the Board challenged the jury's award of damages.
3
On review, the court of appeals reversed. The court first held "that a claim that a party would have received profits from future public project contracts if its bonding capacity had not been impaired is speculative as a matter of law." Denny Constr.,
*746 IL.
The general rule in Colorado is that damages for lost profits may be awarded in breach of contract cases. See Colorado Nat'l Bank of Denver v. Friedman,
First, lost profits are recoverable only if they can be proven with reasonable certainty. See Pomeranz v. McDonald's Corp.,
Second, such profits must be "the foreseeable result of a breach at the time the contract was made." Giampapa v. Am. Family Mut. Ins. Co.,
In this case, the court of appeals held that Denny failed both requirements. Focusing first on the requirement of reasonable certainty, the court held that lost profit damages due to impaired bonding capacity can never be proven with reasonable certainty and thus were "speculative as a matter of law." Denny Constr.,
A.
In holding that, in all cases, lost profits due to impaired bonding capacity are speculative as a matter of law, the court of appeals reasoned:
Whether a party bidding on a particular public project is successful in obtaining the contract depends on a host of factors in addition to bonding capacity. Moreover, profit on such a contract is dependent, in part, on unpredictable future events such as weather, changes in labor and material costs, and changes in management personnel, to name a few. In short, Denny's theory of lost profits is based on inferences piled upon inferences.
Denny Constr.,
1.
It is undoubtedly true that bonding capacity is one factor to be considered in awarding *747 public works contracts. However, it is also true that it is an extremely important one. Indeed, the Board's own personnel who had worked on the Moffat Project, Michael Leis-ter and John Diebel, testified that bonding capacity is an important factor in obtaining public works contracts. In fact, bonding capacity is so important to the award of public works contracts that the General Assembly has set a minimum bond requirement equal to half of the contract price, and has declared that a contract may not be awarded to a contractor who cannot meet this requirement. See §§ 38-26-105, -106, CRS. (2008). Without the requisite bonding capacity, a contractor cannot be awarded a public works contract. The court of appeals' dimin-ishment of bonding capacity as a factor in obtaining public works contracts fails to ree-ognize the purpose of the bonding system.
The goal of the bonding system is to minimize "retentions in and delays in the completion of construction contracts" while also "fostering a healthy and viable construction industry." § 24-91-101, C.R.S. (2008). To that end, the General Assembly has implemented a competitive bidding process for "[alll construction contracts for public pro-jeets," and has required that those contracts "be awarded with reasonable promptness ... to the low responsible bidder." § 24-92-103(1), (7), C.R.S. (2008) (emphasis added). Bonding capacity provides the best measure of a contractor's responsibility.
A contractor must undergo a rigorous vetting process to determine how much, if any, bonding capacity a surety is willing to extend. The surety has a motivation to thoroughly and accurately assess a contractor's responsibility before underwriting a bond because the surety "must assume or correct any flaws in performance" if the contractor defaults. Transamerica Premier Ins. Co. v. Brighton Sch. Dist.,
At bottom, then, a reduction in bonding capacity indicates a reduction in responsibility, which, in turn, will impair a contractor's ability to obtain public works contracts. This is not speculation; on the contrary, it is the intended function of the bonding system.
Importantly, Denny's claim for lost profits does not ignore the fact that factors other than bonding capacity are considered in awarding public contracts. Instead, Denny argues that, based on its history of obtaining public works contracts, it met those other factors considered in the award process. *748 What was missing, its argument continues, was the necessary bonding capacity without which it could not be awarded any contracts. We thus reject the court of appeals' rationale that the fact that bonding capacity is but one factor considered in awarding public works contracts renders lost profits inherently speculative in all cases.
2.
For much the same reason, we find that the court of appeals' second premise-namely, that profits from future public works contracts depend upon "unpredictable future events such as weather, changes in labor and material costs, and changes in management personnel, to name a few," Denny Constr.,
Our precedent indicates that a plaintiff contractor may establish a reasonable basis for computing the amount of lost profits by presenting evidence of prior profitability. See, e.g., Lee,
In Lee v. Durango Music, for example, we applied this rule to a breach of lease claim brought by tenants who operated a music and electronic appliances store on the leased premises. Id. at 271,
We reached a similar outcome in Carlson v. Bain,
Finally, in Acoustic Marketing, which involved a claim for future royalty payments
*749
from the refurbishment of certain medical devices, we rejected the argument that damages based on lost future royalty payments are speculative as a matter of law. In that case, we observed that "royalty payments are by nature contingent on future events, such as future album sales or future oil extraction." Acoustic Marketing,
Here, we do the same. There are uncertainties inherent in any estimation of future damages; however, this fact generally should not prevent a plaintiff from presenting such an estimate-based on competent evidence and reasonable inferences therefrom-and having its estimate evaluated by the trier of fact. See Pomeranz,
We also reject the Board's argument that lost profits in cases of impaired bonding capacity are speculative as a matter of law because they rely on a specific uncertain event-namely, the decision of a third-party surety to reduce Denny's bonding capacity. As noted above, a surety considers multiple factors in determining a contractor's bonding capacity, including performance on previous projects. In addition, "Ht is clearly understood in the construction industry that a contractor's ... bonding capacity can be severely impacted by perceived performance problems or litigation on any contract." Bruner & O'Connor, supra, at 291. Thus, a performance dispute may cause a surety to reduce a contractor's bonding capacity, thereby restricting the contractor's ability to bid on other projects. 'The fact that a surety makes the decision to reduce the contractor's bonding capacity, rather than the breaching party itself, does not render lost profits due to that reduction speculative as a matter of law in all cases.
3.
In support of the argument that lost profit damages due to impaired bonding capacity are speculative as a matter of law, the court of appeals cited in its opinion-and the Board cites to us on review-a number of cases from the Federal Cireuit and the Court of Federal Claims (in its various incarnations) holding that such damages are not available in suits against the United States
4
Denny Constr,
"Absent a waiver, sovereign immunity shields the Federal Government and its agencies from suit." FDIC v. Meyer,
By contrast, it is well established in Colorado that the government must operate under the rules that apply to contracts between private parties. As we recently explained in Colorado Department of Transportation v. Brown Group Retail, Inc.,
We are mindful of the concerns expressed by the Attorney General as amicus that, by applying our general lost profits rule to government entities that breach their contractual obligations, such entities will be subject to higher damage awards. The potential for such awards, the Attorney General continues, will have to be weighed in the balance when government entities are deciding whether to take action against a public contractor-action that might later be deemed to be a breach of contract. Brief of Amicus Curiae the State of Colorado at 6; see also Transamerica,
4.
In sum, we reverse the court of appeals' conclusion that lost profit damages due to impaired bonding capacity can never be reasonably certain and are therefore speculative as a matter of law in all cases. Instead, we find that claims of lost profits due to impaired bonding capacity, like all claims for lost profits, must be established with reasonable certainty. We do not reach the question of whether the claim of lost profits was established with reasonable certainty in this case.
B.
The court of appeals also held that Denny failed to satisfy the requirement that lost profits be reasonably foreseeable at the time that Denny entered into the contract with the Board. See Denny Constr.,
The requirement of foreseeability has long been a part of Colorado contract law. See, e.g., W. Union Tel. Co. v. Trinidad Bean & Elevator Co.,
The Board argues that we should follow Lewis Jorge Construction Management, Inc. v. Pomona Unified School District
As the [School] District pointed out at oral argument, when it signed the contract it did not know what Lewis Jorge's balance sheet showed or what criteria Lewis Jorge's surety ordinarily used to evaluate a contractor's bonding limits. Absent such knowledge, the profits Lewis Jorge claimed it would have made on future, unawarded contracts were not actually foreseen nor reasonably foreseeable.
Id. (emphases added). The court in Lewis Jorge cited only the school district's lack of actual knowledge, without making any inquiry into what the school district should have known. Id. It therefore applied a subjective test of foreseeability-a test that is inconsistent with the objective test we recognized in Giampapa.
In mistaken reliance on Lewis Jorge, the court of appeals found that the lost profit damages in this case were not reasonably foreseeable, stating:
There is no evidence in the record that the parties contemplated a loss of bonding capacity when they entered into the contract, that [the Board] knew the extent of Denny's bonding capacity, that [the Board] knew Denny's overall financial condition, or that [the Board] knew what effect declaring Denny in default would have on Denny's bonding capacity and future business prospects.
Denny Constr.,
IIL.
In sum, we reverse the court of appeals' holding that lost profit damages due to impaired bonding capacity are never reasonably certain and thus speculative as a matter of law. Instead, we find that claims of lost profits due to impaired bonding capacity, like all claims for lost profits, must be established with reasonable certainty. Second, we find that the court of appeals applied an incorrect legal standard to determine whether the lost profits in this case were reasonably foreseeable. The question is not, as the court of appeals held, whether the Board actually knew that Denny would suffer lost profits due to impaired bonding capacity, but whether it knew or should have known that such loss would probably occur. We therefore reverse the court of appeals, and remand the case for further proceedings consistent with this opinion.
Notes
. - According to the testimony of Kevin Lorenz, an ICW bond underwriter, bonding capacity is measured by an aggregate max and a single-job max. The aggregate max indicates the total dollar amount of work, measured on a cost-to-complete basis, that a contractor is pre-approved to undertake. The singlejob max, on the other hand, indicates the maximum dollar amount of any single project that a contractor is pre-ap-proved to undertake. Prior to the Board's declaration of default, Denny had a $1.5 million single-job max and a $4 million aggregate max. By August 2004, however, ICW had terminated Denny's bonding capacity.
. The total damages for lost profits awarded by the jury-$845,000-were well below the over $1.5 million sought by Denny.
. The Board also made a limited challenge to the breach of contract finding, but the court of appeals rejected this argument. The Board did not raise this issue on certiorari to this court.
. See, e.g., Rumsfeld v. Freedom NY, Inc.,