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TRANSCRIPT
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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