YOUR CONSTRUCTION CONTRACT

Posted on March 23, 2024March 23, 2024 by David Adelstein

Your construction contract is an important topic. What’s even more important is YOUR process for reviewing and negotiating construction contracts.

Are you simply acting as a riverboat gambler willing to assume undue risk because you don’t value the investment in understanding what you are signing? If so, it becomes hard to complain about what you agreed to and signed when you chose NOT to invest in the process. Investing in the process means you are working with a construction attorney, you have an insurance broker that understands your industry, you have resources in place to ensure risk is negotiated and allocated, and you understand what risk you are assuming to make sure you are properly protecting and perfecting your rights, and transferring risk downstream.

When it comes to construction contracts, there are really three approaches:

1. Riverboat Gambler. This is the “I’ll sign whatever you give me because I don’t want to lose the contract / revenue.” Under this approach, you are not worried about undue risk because you don’t value the investment in the next two approaches. Your thought process is that you’ll care about the risk when an issue pops up, i.e., the riverboat gambler. This is not an approach I’d recommend because it is contrary to the adage, “an ounce of prevention is worth a pound of cure.” This is simply a reactive approach to issues and risks. The other two approaches are more proactive and better suited to understand and manage risk.

2. Budgeted Approach. Under this approach, you budget a certain amount of money to work with a construction attorney. The attorney works within this budget to provide you bullet points, red-line suggestions, or comments for consideration (e.g., adding PDF comments) within your budget and you factor this input into your business decision and negotiation. Based on this, you can consider whether to expand the budget or take the lead in the edits and negotiation. This approach is good for parties that have experience in understanding and allocating risk and negotiating deal points, and value the budget they are allocating.

3. Invested Approach. This is the most proactive because you are investing in resources to make sure you understand risk, allocate risk, negotiate risk, have the right resources and insurance for risk, educate your team on risk, and are willing to digest and consider deal points. This means working with a construction attorney on contracts as-needed based on your level of sophistication and experience and ensuring you have the right insurance broker that understands your industry and risks. This means an attorney would be engaged in red-lining contracts, negotiating contracts, and working with you and your insurance broker to make sure you understand assumed risk. An attorney prefers this approach because it is a value-added service.

Please reach out to me if you are interested in discussing the second or third approaches. Again, these are more proactive approaches for those that value and appreciate the risk and don’t want to be purely reactive. Since everything starts and ends with your contract, the riverboat gambler approach should be a non-starter to you. There is too much risk in construction to be a riverboat gambler.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

CHECK THE BOXES REGARDING CONTRACTUAL CONDITIONS PRECEDENT TO PAYMENT

Posted on August 6, 2023August 6, 2023 by David Adelstein

Remember this: complying with contractual conditions precedent to payment is important. There is a reason why construction contracts include contractual conditions precedent to payment. The contract does not include this language for sh*ts and giggles. This language is included to establish what is required of the payee before payment becomes due. There may be conditions precedent to the payment of progress payments. There may be conditions precedent to the payment of final payment. Payment is not due until the conditions precedent have been satisfied. Do yourself a favor and consider this language in the construction contract, particularly if a dispute arises. If the condition precedent has not or cannot be satisfied, game plan as to the factual reason. The best thing to do is be prepared – check the boxes regarding conditions precedent to ensure you have considered this contractual language.

In a recent case, Age of Empire, Inc. v. Ocean Two Condominium Association, Inc., 2023 WL 4917089 (Fla. 3d DCA 2023), a contractor entered into a restoration contract with a condominium association. The contract provided that final payment was not due until the contractor furnished a final contractor’s payment affidavit (in accordance with Florida Statute s. 713.06). The contractor filed a lawsuit for final payment. However, the contractor did NOT furnish its final contractor’s payment affidavit prior to filing the lawsuit. Thereafter, the contractor filed an amended complaint attaching a final contractor’s payment affidavit that it served AFTER if filed the original lawsuit. The association moved to dismiss arguing that the final contractor’s payment affidavit, and date therein, demonstrated the contractor failed to satisfy a contractual condition precedent prior to filing the original lawsuit. The trial court agreed and dismissed the lawsuit before it with prejudice, but it did not dismiss with prejudice the contractor’s claim. In other words, the contractor could file a NEW lawsuit that relied on the final contractor’s payment affidavit, provided the contractor’s statute of limitations had not expired. Although the contractor appealed, the appellate court affirmed the trial court’s ruling:

Here, the exhibits [final contractor’s payment affidavit] unequivocally established that [the contractor] did not deliver the final contractor’s affidavit to the Association prior to filing suit, a condition precedent to a breach of contract claim for failure to tender final payment under the Construction Agreement. As such, we find the trial court properly dismissed the claim before it and noted that a future claim would not be barred, as dismissal with prejudice was only as to the lawsuit before it but not the actual claim. The dismissal with prejudice of a prematurely filed claim does not bar a subsequent claim once the claim has ripened.

Age of Empire, supra, at *1 (internal quotation and citation omitted).

DON’T IGNORE THE DISPUTE RESOLUTION PROVISIONS IN YOUR CONSTRUCTION CONTRACT

Posted on May 21, 2023May 21, 2023 by David Adelstein

Don’t ignore dispute resolution provisions in a construction contract. Sometimes, you may want to. But dispute resolution provisions should be one of the first provisions you look to when a dispute arises recognizing these provisions will be raised if you fail to comply. Not only will they be raised, but the presumption is they will be enforced. This is the situation that was raised in Seminole County, Florida v. APM Construction Corp., 2023 WL 3555356 (Fla. 5^th DCA 2023).

Here, a contractor was terminated for cause by Seminole County. The contractor then filed suit against the County. The County moved to dismiss the lawsuit because the contractor failed to comply with contractual presuit administrative procedures in the contract prior to filing a lawsuit. While the trial court denied the County’s motion to dismiss, the appellate court granted the County’s petition for writ of certiorari quashing the trial court’s order denying the motion to dismiss. For purposes of granting the writ of certiorari, the appellate court held irreparable harm existed because “certiorari jurisdiction is properly exercised when a trial court permits a party to litigate when there is a contractual or legal obligation to first administrative proceed.” Seminole County, supra, at *2.

The contract between the County and its contractor contained the following dispute resolution provisions:

(a) In the event of a dispute related to any performance or payment obligation arising under this Agreement, the parties shall exhaust County administrative dispute resolution procedures prior to filing a lawsuit or otherwise pursuing legal remedies….

(b) In any lawsuit or legal proceeding arising under this Agreement [contractor] hereby waives any claim or defense based on facts or evidentiary materials that were not presented for consideration in County administrative dispute resolution procedures set forth in subsection (a) above which [contractor] had knowledge and failed to present during County administrative dispute resolution procedures.

Regardless of the termination for cause, the appellate court noted “nothing in the contract shows that the parties intended to expressly exclude post-termination disputes such as the one brought by [contractor] from the scope of its presuit administrative dispute resolution provisions.” Seminole County, supra, at *2. Thus, the presuit administrative dispute resolution procedures applied. The appellate court explained:

[Contractor] signed a contract in which it agreed that: (1) disputes regarding contract performance shall require the exhaustion of the administrative dispute resolution procedures prior to the filing of a lawsuit; and (2) the termination of [contractor’s] services under the contract by [the County] shall not affect any rights [the County] may have against [the contractor]. Furthermore, the contract contained no language that expressly excluded post-termination disputes—such as the claims being asserted in counts one and two of [the contractor’s] complaint—from the scope of the presuit administrative dispute resolution process. Lastly, we discern no present basis in the record to conclude that the required presuit administrative dispute resolution procedures will be futile.

Seminole County, supra, at *3.

CONSTRUCTION CONTRACT’S SCOPE OF WORK SHOULD BE WRITTEN WITH CLARITY

Posted on February 19, 2023February 19, 2023 by David Adelstein

The scope of work section in your construction contract should never be overlooked. In numerous instances, it is overlooked which leads to a dispute as to the precise nature of the scope of work. This dispute could be the result of an ambiguity in the scope of work section. Or it could be the result of an omission. Or it could be the result of a lack of clarification. Or it could be the result of not properly reviewing and vetting the scope of work section. This is a section—whether included in the body of your contract or attached as an exhibit—you absolutely, positively want clarity. Otherwise, you are potentially setting yourself up for a future dispute that could include (i) an additional work / change order dispute, (ii) an incomplete work dispute, or (iii) a failure to properly perform your work dispute. These are all disputes you want to avoid, and many times can avoid, by going through and negotiating the scope of work section to bring clarity to this section. Remember, clarity is a positive. Ambiguity or uncertainty is a negative.

An example of such an avoidable scope of work dispute can be found in All Year Cooling and Heating, Inc. v. Burkett Properties, Inc., 2023 WL 2000991 (Fla. 4^th DCA 2023). Here, an air conditioning contractor was hired to install six new split air conditioning systems. The scope of work provided that there were currently “two split systems that are currently existing, working perfectly and are not to be replaced as part of this contract.” The property manager claimed the air conditioning contractor was required to bring these two existing split air conditioning systems up to code as the contract provided that notwithstanding anything to the contrary, the contractor “will certify and shall ensure that all split systems in the building, upon completion of all the work, will be fully compliant with all codes and regulations and shall be responsible for any costs relates to the implementation and/or remediation of same.”

The air conditioning contractor disputed this added scope of work. After a bench trial, the trial court entered a judgment in favor of the property manager and against the air conditioning contractor.

On appeal, the trial court’s judgment was reversed and remanded back to the trial court for entry of a judgment in favor of the air conditioning contractor.

However, we do not read this code compliance provision as encompassing the existing split systems that were excluded from the contract’s scope of work.

Here, the general purpose of the contract as a whole – including pricing – was for the installation of six new split systems and the disposal of the old water tower. And the paragraph addressing the scope of work made it clear that the [two] existing split systems were “working perfectly” and were “not to be replaced as part of this contract.” Despite the use of the word “notwithstanding,” the code compliance provision must be read in a way that is compatible with the contract as a whole.

****

The contract required the Contractor to ensure that the six split systems it installed were code compliant, and nothing more.

All Year Heating and Cooling, supra, at *2.

If the property manager wanted or expected the existing split air conditioning systems to be brought up to code, it should have ensured this language was included in the scope of work section. It may have warranted additional pricing, but it would have avoided this dispute. And perhaps the contractor could have clearly excluded any work regarding the existing split air conditioning systems, although it did include language that such work was not part of the contract. The objective always remains to bring clarity to the scope of work section.

A LACK OF SOPHISTICATION WITH THE CONSTRUCTION CONTRACT CAN PLAY OUT IN AN UGLY DISPUTE

Posted on October 16, 2022October 16, 2022 by Edward Garber

There are times where a lack of sophistication can come back to haunt you. This is not referring to a lack of sophistication of the parties. The parties, themselves, could be quite sophisticated. This is referring to a lack of sophistication with the construction contract forming the basis of the relationship. While parties don’t always want to buy into the contract drafting and negotiation process, it is oftentimes the first document reviewed. Because contract terms and conditions are important. They govern the relationship, the risk, scope, amount, and certain outcomes with disputes. However, a lack of sophistication can play out when that contract that should govern the relationship, the risk, the scope, the amount, and certain outcomes doesn’t actually do that, or if it does, it does it poorly. An example of how bad a dispute can play out when it comes to the lack of sophistication on the front end is Avant Design Group, Inc. v. Aquastar Holdings, LLC, 2022 WL 6852227 (Fla. 3d DCA 2022), where a cost-plus contract was treated as a lump sum contract.

Here, an owner planned to perform an extensive interior build-out to a residential unit. The owner had an out-of-country architect; because the architect was not licensed in Florida, the owner hired a local architect/designer to oversee construction and obtain goods and services for the residential interior build-out. The contract was nothing but a proposal of items and costs. The proposal stated the owner “would pay the cost of goods and services of the vendors, plus pay a ‘20% Interior Design & Administrative Fee’” to the local designer. Avant Design Group, 2022 WL at *1. The proposal further stated, “This preliminary budget of the Client’s construction costs include [sic] anticipated costs for construction materials, labor and sales tax. Any other cost, including but not limited to freight, cartage, shipping, receiving, storage and delivery are not included in the preliminary budget and will be invoiced separately.” Id., n.2.

The owner and its local designer executed 92 proposals for purposes of the interior residential build-out. Think about this: 92 proposals. Collectively, all of these so-called proposals formed the basis of the contractual arrangement between the owner and local designer. Terms and conditions, however, appeared to be skimpy at best. The bigger issue, mentioned below, is the application of the 20% fee, as the language would suggest it is a cost-plus contract where the fee of 20% was on top of actual costs.

A dispute arose. The owner thought it was being over-charged so it terminated the local designer. The local designer thought it was underpaid so it recorded a lien. Then, the inevitable lawsuit. At trial, the owner had a forensic expert that testified that the owner was overcharged by over $500,000. This was based on the owner’s position that the contract was actually a cost-plus contract. The local designer claimed it was lump sum. The type of contract—whether it was cost-plus OR lump sum—formed the basis of the dispute, and it mattered a lot. A cost-plus arrangement meant that the local designer would be entitled to a cost of the goods and services plus its 20% fee markup. A lump sum meant that actual costs did not matter–in other words, all of the proposals were simply mini-lump sum arrangements that could factor in the 20% fee markup.

“Generally, absent a finding of ambiguity, parol evidence is not admissible to assist the factfinder regarding the parties’ intent.” Avant Design Group, supra, n.10. Stated differently, expert testimony and the testimony of the parties is irrelevant when the contract is unambiguous. While here, the trial court did not render any findings that the contract was ambiguous, “both parties, without objection, elicited expert testimony regarding the nature of the parties’ contract.” Avant Design Group, supra, n.10. Both parties viewed the type of contract to be a factual issue and the trial court ruled that the contract was a cost-plus agreement. “As ample evidence supports the trial court’s finding that the parties entered into a cost-plus contract that limited [owner’s] payment obligation to the 20% Fee, we affirm the trial court’s principal conclusion regarding the contract’s payment terms.” Avant Design Group, supra, *4.

The determination of whether the contract was cost-plus or lump sum was really the dispute and determined the outcome. It was the dispute. This determination meant that the local designer was overpaid by over $500,000, its lien was fraudulent, and its lien should be discharged. Had the determination been that the contract was lump sum, the entire outcome of the case should have been different. Keep this in mind. If your intent is lump sum, make that intent clear. Conversely, if it is cost-plus, it is a completely different contract relationship and contract administration because you cannot add your markup to what you are already marking up as that is double dipping. Notably, the case of Avant Design Group has a number of interesting issues to be discussed. Those will be probably be discussed separately in shorter postings. The key, though, is that the dispute centered on a cost-plus contract being treated as lump sum, when that was clearly not the case.

IS THE EVENT YOU ARE CLAIMING AS UNFORESEEABLE DELAY REALLY UNFORESEEABLE?

Posted on August 27, 2022August 27, 2022 by Edward Garber

Is the item or event you are claiming as an unforeseeable, excusable delay really unforeseeable? This is not a trick question.

Just because your construction contract identifies items or events that constitute unforeseeable, excusable delay does not mean those items can be used as a blanket excuse or crutch for the contractor. That would be unfair.

For instance, it is not uncommon for a construction contract to list as unforeseeable, excusable delay the following events or items: “(i) acts of God or of the public enemy, (ii) act of the Government in either its sovereign or contractual capacity, (iii) acts of another Contractor in the performance of a contract with the Government, (iv) fires, (v) floods, (vi) epidemics, (vii) quarantine restrictions, (viii) strikes, (ix) freight embargoes, (x) unusually severe weather, or (xi) delays of subcontractors or suppliers at any tier arising from unforeseeable causes beyond the control and without the fault or negligence of both the Contractor and the subcontractors or suppliers.” See, e.g., F.A.R. 52.249-10(b)(1). While the itemization of excusable delay may be worded differently, the point is there may be a listing as to what items or events constitute excusable delay. An excusable delay would justify additional time and, potentially, compensation to the contractor.

The Civilian Board of Contract Appeals explained that a listing of items or events leading to unforeseeable, excusable delay is NOT intended to give the contractor free rein or a get-of-jail free card if the contractor encounters such delaying item or event:

Nevertheless, the mere fact that a delay is caused by a type of activity listed in the contract as generally excusable does not give the contractor carte blanche to rely upon such excuses. “The purpose of the proviso,” which is “to protect the contractor against the unexpected, and its grammatical sense both militate against holding that the listed events are always to be regarded as unforeseeable, no matter what the attendant circumstances are.” As the Supreme Court has explained, “[a] quarantine, or freight embargo, may have been in effect for many years as a permanent policy of the controlling government” and, if so, may not meet the definition of a cause “unforeseeable” at the time of contract award, even if quarantines and freight embargoes are listed in the contract as examples of possible excusable causes of delay.

Further, even if an unforeseeable cause of delay occurs, the contractor cannot sit back and fail to take reasonable steps in response to it — once such an unforeseeable event occurs, the contractor affected by it has an obligation to attempt to mitigate the resulting damage to the extent that it can. If the contractor fails to do so, it “may not recover those damages which could have been avoided by reasonable precautionary action on its part.”

Yates-Desbuild Joint Venture v. Department of State, CBCA 3350, 2017 WL 4296219 (CBCA 2017) (internal citations omitted).

Now, think about your construction contract. It may list similar items or events constituting delay. Perhaps it expands on this list and identifies COVID, the Russia-Ukraine war, or supply chain impacts. Similar to the reasoning above, “the mere fact that a delay is caused by a type of activity listed in the contract as generally excusable does not give the contractor carte blanche to rely upon such excuses.” Yates-Desbuild Joint Venture, supra. We know of the existence of COVID, the Russia-Ukraine war, and current supply chain impacts such that they are not unforeseeable. And, encountering such an item or event cannot be used to compensate for other delays as the contractor “cannot sit back and fail to take reasonable steps in response to it.” Yates-Desbuild Joint Venture, supra. The contractor still must mitigate the item or event it claims is causing excusable delay.

This serves as an example as to why you want clarity in your construction contract. If you are identifying an item or event as unforeseeable, make sure it truly is or specify the context in which the item or event constitutes excusable delay.

QUICK NOTE: ATTORNEY’S FEES ON ATTORNEY’S FEES

Posted on May 22, 2022May 22, 2022 by Edward Garber

In a recent case, the appellate court held that the attorney’s fees provision in the contract was NOT broad enough to entitle the prevailing party to recover attorney’s fees for litigating the amount of attorney’s fees. This is known as “fees on fees” which is when you can recover your prevailing party attorney’s fees when you are fighting over the quantum that should be awarded to you as the prevailing party.

The attorney’s fees provision at-issue stated:

“In any lawsuit to enforce the Lease or under applicable law, the party in whose favor a judgment or decree has been rendered may recover its reasonable court costs including attorney’s fees from the non-prevailing party.”

Language similar to this language can be found in many contracts as a prevailing party attorney’s fees provision.

However, this provision was NOT broad enough to recover “fees on fees.” As explained in this article, if this is a consideration, you can negotiate or include this provision into your construction contract by expanding the scope of the prevailing party attorney’s fees provision to clarify that it entitles the prevailing party to recover attorney’s fees in litigating the amount of attorney’s fees.

There is both a good and bad to this. The good is that if you are the prevailing party, you have a contractual basis to recover your fees for litigating the amount of fees. The bad is that if you are the other party to this equation, it becomes harder to resolve a prevailing party attorney’s fees issue when the other party is entitled to attorney’s fees to litigate the reasonableness of attorney’s fees. Thus, you are in a position where you need to decide whether to pay the other party what they want to avoid continued fees or incurring more fees (both on your end and fees you will have to pay the other party) simply to argue over the amount of fees.

DOES THE RUSSIA UKRAINE WAR LEAD TO A CONSIDERATION IN YOUR CONSTRUCTION CONTRACTS?

Posted on March 26, 2022March 26, 2022 by Edward Garber

Material costs are still affecting the construction industry. Supply chain impacts too. The volatility started with COVID-19 (and, in certain cases, before with the imposition of tariffs) and has continued through present date.

But what about the war between Russia and Ukraine and the impact this has had or may have on the supply chain? I think the spillover from the war (with oil, gas, the energy sector, etc.), including the imposition of any sanctions, is not fully realized other than the concern exists in an economy that is already battling through material costs and supply chain disruptions.

How does this affect you?

It may not.

Or you may regularly enter into construction contracts in which you would be smart to address material costs and supply chain impacts. The reason being is that everything from a risk standpoint should begin with your construction contract. Not addressing an issue does not actually mitigate the risk. Confronting the issue does mitigate the risk because you are contractually addressing a concern and know where the other party stands relating to that concern so that business decisions can be made.

This does not mean the Russia and Ukraine war provides you a get-out-of-jail free card for every material cost or supply chain issue you deal with. It does not and should not. That would not be fair, right? What is currently affecting the construction industry should not be a basis to shield from accountability or causation. You still need to connect dots by tying a material cost escalation or supply chain impact to an actual event. The key is ALWAYS to understand how this will be dealt with in your construction contract and there are many ways to do so. Sure, the volatility of the market makes it difficult to predict any material cost in the near future and whether certain products will be impacted by supply chain disruptions. Recognizing the risk is the first step in trying to negotiate the allocation of that risk in your contract.

Remember, simply calling something a force majeure event post-contract does not actually make it so, particularly if you know about the event and the potential of the risk at the time of contract.

THERE IS NO SYMPATHY IF YOU FAIL TO READ CLOSELY THE FINAL NEGOTIATED CONSTRUCTION CONTRACT

Posted on February 20, 2022February 20, 2022 by Edward Garber

When an opinion in a case starts with, “Unlike some motions, not even the most ingenious lawyers could make this one complicated,” you know you are in for an interesting read. This was how the opinion started in U.S. f/u/b/o Hambric Steel and Fabrication, Inc. v. Leebcor Services, LLC, 2022 WL 345636 (M.D. GA. 2022), which concerns a Miller Act payment bond dispute between a subcontractor and prime contractor on a federal construction project.

As demonstrated below, the moral of this case is in fact simple. Read what you sign BEFORE you sign! No ifs, ands, or buts. Failure to do so will garner very little sympathy.

This case dealt with a prime contractor arguing that the subcontractor pulled the wool over its eyes by surreptitiously altering the final negotiated redlined contract between the parties. In particular, the prime contractor claimed that the dispute resolution provision was supposed to include a Virginia venue provision. However, the subcontractor “fraudulently” changed this provision to make it a Georgia venue provision after the final contract had been agreed to during the negotiation. Yet, it is undisputed that the executed contract between the parties included a Georgia venue provision.

The Miller Act contains a statutory venue requirement; however, this requirement can be modified by a venue provision / forum selection clause in the subcontract. Here the prime contractor wanted venue to be in Virginia even though the executed subcontract contained a Georgia venue provision. The BIG problem for the prime contractor:

[The prime contractor] has not pointed to any evidence that it was prevented from reading the revisions to the contract draft related to the forum selection clause. Through the exercise of reasonable diligence, [the prime contractor] certainly could have discovered the change. It possessed the revised draft, had ample time to review it, and chose to sign it. While [the subcontractor] may have edited the forum selection clause in a manner different than other revisions made during the negotiation process, nothing prevented [the prime contractor] from reading the final revised draft in its entirety before signing it. Choosing not to do so for the sake of convenience does not excuse it from being bound by the contract that it signed. Moreover, [the subcontractor’s] failure to affirmatively and specifically highlight the changes for [the prime contractor] does not amount to fraud. The revision was clearly set out in the final draft document and could have been noticed through reasonable diligence. Signing a contract that is different than the one the party thought it had negotiated is not a sufficient basis, standing alone, to reform the fully executed written agreement.

Leebcor Services, supra, at *2

APPLICATION OF TWO CONSTRUCTION CONTRACT PROVISIONS: NO-DAMAGES-FOR-DELAY AND LIQUIDATED DAMAGES

Posted on February 5, 2022February 5, 2022 by Edward Garber

A recent Florida opinion between a prime contractor and a Florida public body touches upon two important issues: (1) the application of a no-damage-for-delay provision; and (2) the application of a liquidated damages provision. Both provisions find there way into many construction contracts. Unfortunately, the opinion is sparse on facts. Nevertheless, the application of these provisions is worthy of consideration.

In this opinion, Sarasota County v. Southern Underground Industries, Inc., 2022 WL 162977 (Fla. 2d DCA 2022), a county hired a contractor to install sanitary and water piping underneath a waterway. During construction, a nearby homeowner complained that vibration from the drilling caused damage to his home. As a result, the county stopped the contractor’s work to address a potential safety issue, as it was contractually entitled to do. The contractor hired a structural engineer to inspect the house and the engineer issued a report determining that any alleged damage was cosmetic and that there was sufficient monitoring of the vibrations to prevent future damage. The contractor also had an insurance policy to cover any homeowner claim for damage. However, upon receipt of the engineer’s report, the county did not lift its stop work order. Rather, the stop work order remained in place for an additional 71 days.

NO-DAMAGES-FOR-DELAY

The contractor sued the county to recover its costs during the additional 71 days the project was stopped. The county relied on its no-damages-for-delay provision in its contract. The trial court, as affirmed by the appellate court, found that the county’s work stoppage for an additional 71 days amounted to active interference and bad faith.

“Although ‘no damages for delay’ clauses are recognized in law, they will not be enforced in the face of governmental ‘fraud, bad faith, or active interference’ with the performance under the contract.” Sarasota County, 2022 WL at *2 (citation omitted). There was no reason to keep the stop work order in place after it was found it was safe to resume the construction activities.

LIQUIDATED DAMAGES

However, the trial court did assess liquidated damages against the contractor because the matter with the complaining homeowner had not been resolved by the contractual date for final acceptance.

For a liquidated damages clause to be enforceable, “the damages consequent upon a breach must not be readily ascertainable,” and “the sum stipulated to be forfeited must not be so grossly disproportionate to any damages that might reasonably be expected to follow from a breach.” “[L]iquidated damages clauses can exist only when they provide for ’damages’ (something to be given by one party who breaches the contract to the other party to compensate the other party for his loss which is a consequence of that breach).”

Sarasota County, 2022 WL at *2 (citations omitted).

The appellate court reversed the trial court’s assessment of liquidated damages because the county did not sustain any loss due to any delay to final acceptance. The contractor had completed all of its work by the contractual date except for resolving the complaining homeowner’s claim. “Thus, because the County had the full use for the completed construction project for over two years before final acceptance, ‘the sum stipulated to be forfeited,” was “grossly disproportionate to any damages that might [have been] expected to follow from a breach.’” Sarasota County, 2022 WL at *3 (citation omitted).

COMMENTS

The limited facts do not do this opinion any justice. However, it’s important to appreciate that a no-damages-for-delay provision is not the be-all-and-end-all of a delay claim. It just isn’t! As this court found, the work stoppage beyond the point it should have been stopped was active interference and bad faith.

As for the liquidated damages argument, that’s a head scratcher unless the court’s point is that once the government got beneficial use of the project, any delay in its final acceptance of the contract constituted a penalty even though sophisticated parties agreed to this provision. (Not how the court worded it though!). Also, this opinion could have the affect of opening up Pandora’s box by allowing a party to take discovery on financial information or otherwise relative to actual damages when, frankly, this defeats the purpose of the liquidated damages provision.

Liquidated damages provisions on private jobs are negotiated by sophisticated parties. On public jobs, you know what the liquidated damages are and how the provision is generally worded and can factor that into your pricing, no different than any other risk included in the contract.