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DAMAGES WITHOUT A CLAUSE: LIQUIDATED DAMAGES ARE A PENALTY WHEN
OWNERS RECOVER DAMAGES FOR THEIR OWN DELAY
September 9-11, 2019
Christopher J. [email protected]
Presented by:
1765 Greensboro Station PlaceSuite 1000
McLean, Virginia 22102703-749-1000
www.watttieder.com
Presented at
Kathleen O. [email protected]
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HYPOTHETICAL
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O O C C
OWN-R-US OWNER
CORDIALCONTRACTOR
Kathy Barnes Chris Brasco
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Case Background
Tunnel project 12 months behind scheduleVarious delays
associated with the
Project Contractor does not submit Notice of the
Delays or a Request for a Time ExtensionAt end of the Project,
Owner assesses
twelve months of LDs
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Hypothetical Contract Language
Notice Provision● “Should the Contractor be delayed or disrupted
in performing
the Work, Contractor shall promptly, and in no event more than
five (5) business days after the occurrence of the event, notify
the Owner in writing of the condition. Failure to strictly comply
with this notice requirement shall be sufficient cause to deny the
Contractor an extension of time / any additional compensation.”
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Hypothetical Contract Language
Claim Submission Provision● “Any request by the Contractor for
an extension of time shall
be made in writing to the Owner no more than thirty (30) days
after the initial occurrence of any event which, in the
Contractor's opinion, entitles the Contractor to an extension of
time. The claim must include a Time Impact Analysis (TIA) including
a written narrative and supporting schedule fragnetdetailing the
anticipated schedule impact of the change(s), if any. Failure to
timely submit a claim to the Owner shall constitute a waiver by the
Contractor of any claim for an extension of time and/or additional
compensation.”
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Hypothetical Facts- Round 1Scenario No. 1
(Concurrent Delay)
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Hypothetical Facts- Round 1
Scenario No. 2(Owner-Caused Delay)
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LIQUIDATED DAMAGESOverview and Evolution
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What Are Liquidated Damages?
Liquidated Damages (“LDs”) provisions generally specify a per
diem charge that will be assessed against the contractor for each
calendar day project completion is delayed beyond an established
contractual milestone (i.e., substantial completion)
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Public Policy Against Penalties / Forfeitures
v.Freedom to Contract
Conflicting Concerns
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“Damages for breach by either party may be liquidated in the
agreement but only at an amount that is reasonable in the light of
the anticipated or actual loss causedby the breach and the
difficulties of proof of loss. A term fixing unreasonably large
liquidated damages is unenforceable on grounds of public policy as
a penalty.”-Restatement (Second) of Contracts § 356 (1981)(emphasis
added)
Centrality of Causation
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Elements of a Breach of Contract Claim1) Existence of a
contract2) Contractual performance by plaintiff3) Breach of the
contract by defendant 4) Resulting damages
“Causation is an essential element of damages in a breach of
contract action.” - Nat'l Mkt. Share, Inc. v. Sterling Nat. Bank,
392 F.3d 520, 525 (2d Cir. 2004)
Basics of Contract Damages
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Liquidated Damages provisions are generally enforceable when:●
Intended to be compensatory rather than punitive;●The injury from
the contractual breach is difficult to precisely
quantify; and●The amount of stipulated damages is a reasonable
forecast
of future loss[Source: 24 Williston on Contracts § 65:3 (4th
ed.)]
Enforceability
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Evolution of the Law on LDs
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1907LDs Generally Recognized in the U.S.
(United States v. Bethlehem Steel Co., 205
U.S. 105, 119 (1907))
1914Rule Against
Apportionment (United States v. United
Eng'g & Constr. Co.,234 U.S. 236, 242
(1914))
1931Gantt Chart used for the Hoover Dam
Project
1957DuPont successfully implements CPM with
Remington Rand Univac on a chemical
plant project
1983Primavera’s
(P3) first release on MS-DOS
platform
2000Federal Circuit
adopts Rule of Clear Apportionment
(Sauer Inc. v. Danzig, 224 F.3d 1340
(Fed. Cir. 2000))
2011“Rule” Abandoning
Apportionment applied (Greg Opinski Constr., Inc. v.
City of Oakdale, 199 Cal. App. 4th 1107, 1112 & 1121
(Ct. App. 2011))
1900's 1910's 1920's 1930's 1940's 1950's 1960's 1970's 1980's
1990's 2000's 2010's
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1900's1910's1920's1930's1940's1950's1960's1970's1980's1990's2000's2010's
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Modern Rule of Clear Apportionment
Rule: When both the owner and the contractor proximately
contribute to the project delay, the owner can recover liquidated
damages if the delay attributable to each party is capable of being
clearly apportioned.Rationale: CPM SchedulingSauer Inc. v. Danzig,
224 F.3d 1340 (Fed. Cir. 2000)
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CONCURRENT DELAY
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LDs and Concurrency – The Basics
Concurrent Delay Defined● “[T]wo delays occurring at the same
time that are the legal
responsibility of different parties, each of which, independent
of the other, delay the completion of the project.” John Livengood
and Daniel S. Brennan, “Approaches to
Concurrent Delay,” 38 Construction Lawyer 1, p. 27 (Winter
2019)
Concurrent Delay and LDs●No clear apportionment = No Owner
recovery of LDs during
period of concurrent delay
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Redefining Concurrency
Contract Provision Example:● “If an Unexcused Delay [Contractor
Fault] occurs
concurrently with either an Excusable Delay [Shared Fault] or a
Compensable Delay [Owner Fault], the maximum extension of the
Contract Time shall be the number of Days, if any, by which such
Excusable Delay [Shared Fault] or Compensable Delay [Owner Fault]
exceeds the number of Days of such Unexcused Delay [Contractor
Fault].”
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Hypothetical Contract Language
Unexcused Delay (Contractor Caused)
Excusable or Compensable Delay (Owner Caused)
Time Extension
$
Unexcused Delay (Contractor Caused)
Excusable or Compensable Delay (Owner Caused)
T.E.
$
Conventional Rule
Hypothetical Contract Language
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EMERGING “RULE” ABANDONING APPORTIONMENTIllustrative Cases
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“Rule” Abandoning Apportionment
Emerging “Rule”: When the contractor does not proximately cause
the delay, the owner can still recover liquidated damage where the
contractor fails to properly request a time extension / additional
compensation under the contract
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Illustrative CasesEmerging Rule:
Abandoning Apportionment
Greg Opinski Constr., Inc. v. City of Oakdale, 199 Cal. App. 4th
1107 (Ct. App. 2011)
“If the contractor wished to claim it needed an extension of
time because of delays caused by the city, the contractor was
required to obtain a written change order by mutual consent or
submit a claim in writing requesting a formal decision by the
engineer. It did neither. The court was correct to rely on its
failure and enforce the terms of the contract. It makes no
difference whether Opinski's timely performance was possible or
impossible under these circumstances.”
Rule of Clear Apportionment
Stone v. City of Arcola, 536 N.E.2d 1329 (Ill. App. Ct. 4th
Dist. 1989)
“…the failure of the plaintiff to give written notice of the
delay may be considered a waiver of a claim for delay, but ‘the
waiver of a claim for delay does not correspondingly dictate that
the party waiving the delay be held liable for the delay.’”
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Arguments Against Emerging “Rule”
Departure from historic evolution of apportionment of liquidated
damages rooted in causationAllowance of liquidated damages
regardless of cause
constitutes an unenforceable penaltySword v. Shield Distinction
– Waiver of affirmative
recovery doesn’t justify a windfallEstoppel / Waiver – Both
parties complicit in
contemporaneous failure to press claims
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What Can Contractors Do?
Review the Contract●LD provision●Procedural requirement for
asserting claim/time extension●Definition of concurrency?
Follow all contractual requirements for obtaining a time
extensionEducate the project team on principles of timely claim
resolution●Concurrency is not a cure-all
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Christopher J. [email protected]
1765 Greensboro Station PlaceSuite 1000
McLean, Virginia 22102703-749-1000
www.watttieder.com
Kathleen O. [email protected]
Damages without a clause: Liquidated Damages are a Penalty When
Owners Recover Damages for Their Own delayHypotheticalSlide Number
3Case BackgroundHypothetical Contract LanguageHypothetical Contract
LanguageHypothetical Facts- Round 1Hypothetical Facts- Round
1Liquidated DamagesWhat Are Liquidated Damages?Conflicting
ConcernsCentrality of CausationBasics of Contract
DamagesEnforceabilityEvolution of the Law on LDsModern Rule of
Clear ApportionmentConcurrent DelayLDs and Concurrency – The
BasicsRedefining ConcurrencyHypothetical Contract LanguageEmerging
“Rule” Abandoning Apportionment“Rule” Abandoning
ApportionmentIllustrative CasesArguments Against Emerging
“Rule”What Can Contractors Do?Slide Number 26
