In construction, the adage “Time is Money!” rings true for all parties involved on a project.  This includes an owner of a project that wants a project completed on time, i.e., by a substantial completion date.   While substantial completion is often defined as when an owner can use a project for its intended purpose, this intended purpose typically equates to beneficial occupancy (in new construction) and other factors as identified in the contract.

The best mechanism for an owner to reinforce time and the substantial completion date is through a liquidated damages provision (also known as an LD provision) that includes a daily monetary rate for each day of delay to the substantial completion date.

A liquidated damages provision is not designed, and should NEVER be designed, to serve as a penalty because then it would be unenforceable.  Instead, it should be designed to reasonably compensate an owner for delay to the substantial completion date that cannot be ascertained with any reasonable degree of certainty at the time the contract is being negotiated and executed.  (Liquidated damages are MUCH easier to prove than actual damages an owner may incur down the road.)  As an owner, you don’t really want to assess liquidated damages because that means the project is not substantially completed on time.  And, in reality, a timely completed and performing project should always be better and more profitable than a late and underperforming project.   However, without the liquidated damages provision, there isn’t a great way to hold a contractor’s feet to the fire with respect to the substantial completion date.

There are numerous ways to equitably craft a liquidated damages provision if it is a negotiated provision (like in private projects).  It can be based on project phases or milestones. It can be based on one substantial completion date.  It can include a grace period.  It can include gradual increases in the daily rate based on certain time periods associated with delay.  It can be capped at a certain amount to cap the exposure.  The bottom line is that it is a risk that gets factored into the contract and substantial completion date to emphasize timely completion.

Many construction contracts will contain a mutual waiver of consequential damages provision.  This provision may include specific examples of consequential damages.  In other words, regardless of whether such examples truly constitute consequential damages, these damages examples are contractually mutually waived by the parties.  Two examples commonly include loss of use damages and increased  or additional financing damages.  These two examples are categories that do go hand-in-hand with an untimely project.  For instance, if a project is late, the owner cannot use the project by the substantial completion date and will have increased and/or additional financing costs.  Without a liquidated damages provision, and with a mutual waiver of consequential damages provision, an owner may be sh*t out of luck with recovering delay damages for a delayed project because primary actual delay damages they could prove have been waived.  (Thus, there is nothing holding the contractor’s feet to the fire regarding the substantial completion date.)  Hence, if you are going to negotiate having no liquidated damages provision, be mindful of the mutual waiver of consequential damages provision and what you may be conceding.

This is important: simply because there is a liquidated damages provision does not mean a contractor should unilaterally be exposed to liquidated damages for a delayed project.  There may be legitimate excusable delay that needs to get factored in including excusable compensable delay meaning the contractor is owed its own delay damages.  There could be concurrent delay that needs to get factored in.  While an owner may not accept a contractor’s request for additional time or claimed excusable or concurrent delay, this does not mean a contractor is just going to cave when it comes to an owner’s assessment and withholding of sums associated with liquidated damages.  Most contractors are not going to unless it is irrefutable that the delay to substantial completion was caused by them (more specifically, a trade).

A contractor agreeing to a liquidated damages provision needs to make sure that it flows the risk downstream to trades that may cause the delay.  A contractor still needs to prove the trade caused the delay, but the contractor must flow-down that risk.  If a trade is unwilling to assume that risk, that needs to be considered by the contractor.  In any event, the contractor cannot agree that the trade is not liable for any delay because the risk the contractor has assumed is not transferred to a trade that may cause that risk meaning there is nothing that holds that trade’s feet to the fire.

A liquidated damages provision is neither uncommon nor unreasonable.  It is a risk, oftentimes negotiated on private jobs but maybe not the case on public jobs, that is factored in at the onset of any project.  It is a risk that cannot be overlooked but is the risk designed to best maximize the emphasis on time is of the essence as to the substantial completion date.


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.



shutterstock_329903120Contractual waivers of consequential damages are important, whether they are mutual or one-sided.  I believe in specificity in that the types of consequential damages that are waived should be detailed in the waiver of consequential damages provision. Standard form construction agreements provide a good template of the types of consequential damages that the parties are agreeing to waive. 


But, what if there is no specificity in the waiver of consequential damages provision? What if the provision just states that the parties mutually agree to waive consequential damages or that one party waives consequential-type damages against the other party?  Let me tell you what would happen.  The plaintiff will argue that the damages it seeks are general damages and are NOT waived by the waiver of consequential damages provision.  The defendant, on the other hand, will argue that the damages are consequential in nature and, therefore, contractually waived.   FOR THIS REASON, PARTIES NEED TO APPRECIATE WHAT DAMAGES ARE BEING WAIVED OR LIMITED, AND POTENTIALLY THOSE DAMAGES NOT BEING WAIVED OR LIMITED, WHEN AGREEING TO A WAIVER OF CONSEQUENTIAL DAMAGES PROVISION!


Interestingly, this issue appeared in the recent case, Keystone Airpark Authority v. Pipeline Contractors, Inc., 43 Fla. L. Weekly D2601d (Fla. 1stDCA 2018).   Here, a plaintiff sued a contractor and engineer for defects to an airplane hangar and taxiways.  The plaintiff claimed the engineer’s negligence through its failure to supervise the work as contractually required which resulted in defective construction.  The plaintiff claimed that the engineer was responsible for the costs to repair the airplane hangar and taxiways.   The engineer argued under a waiver of consequential damages provision that read:


“Passero [engineer] shall have no liability for indirect, special, incidental, punitive, or consequential damages of any kind.”  


The engineer argued that the damages the plaintiff was seeking due to its failure to supervise was excluded under the waiver of consequential damages provision in the contract.  The plaintiff argued that such damages are general damages and not barred.  The trial court, as affirmed by the appellate court, held that the damage was barred because the damage was consequential.  In doing so, the court examined the definitions of the types of damages:


General damages are ‘those damages which naturally and necessarily flow or result from the injuries alleged. . . . General damages  ‘may fairly and reasonably be considered as arising in the usual course of events from the breach of contract itself. Stated differently, [g]eneral damages are commonly defined as those damages which are the direct, natural, logical and necessary consequences of the injury.

In contrast, special damages are not likely to occur in the usual course of events, but may reasonably be supposed to have been in contemplation of the parties at the time they made the contract. They consist of items of loss which are peculiar to the party against whom the breach was committed and would not be expected to occur regularly to others in similar circumstances.  In other words, general damages are awarded only if injury were foreseeable to a reasonable man and . . . special damages are awarded only if actual notice were given to the carrier of the possibility of injury. Damage is foreseeable by the carrier if it is the proximate and usual consequence of the carrier’s action.

[C]onsequential damages do not arise within the scope of the immediate buyer-seller transaction, but rather stem from losses incurred by the non-breaching party in its dealings, often with third parties, which were a proximate result of the breach, and which were reasonably foreseeable by the breaching party at the time of contracting. The consequential nature of loss . . . is not based on the damages being unforeseeable by the parties. What makes a loss consequential is that it stems from relationships with third parties, while still reasonably foreseeable at the time of contracting


Keystone Airpark Authority, supra (internal citations and quotations omitted).



Based on these definitions, the court agreed that the repairs to the hangars and taxiways were not special damages as “[i]t cannot be said that repairs stemming from improperly supervised construction work are unlikely to occur in the usual course of business.”  Keystone Airpark Authority, supra.   Such damages did not involve special circumstances for which the plaintiff would be required to give the engineer actual notice. 


BUT… these damages were CONSEQUENTIAL:


[T]he cost of repair here did not constitute general damages, either, because the damages were not the direct or necessary consequence of Passero’s [engineer] alleged failure to properly supervise the construction work.  The contractor could have completed the job correctly without Passero’s supervision.  Thus, the need for repair did not arise within the scope of the immediate transaction between Passero and the Airpark.  Instead, the need for repair stemmed from loss incurred by the Airpark in its dealing with a third party – the contractor.  While these damages ‘were reasonably foreseeable,’ they are consequential and not general or direct damages.


The appellate, however, certified the following question of great public importance:




Thus, there could be a ruling in future from the Florida Supreme Court relating to construction industry, specifically relating to the damages associated with a supervising architect or engineer.


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.