ACPA Concrete Pavement Progress Q1 2020

Concrete Pavement Progress www.acpa.org 22 PROJECT DELAY IS AN UNWELCOME though regu- lar visitor. If the delay were not caused by the contractor, then the contractor normally has a right to a time extension (if calendar-based) or non-charging of a working day. Yet there are all too many occasions where the delay was caused by the contractor. When this occurs, the contractor normally has no right to additional time. The contractor is consequently exposed to paying liquidated damages. The good news is that even if the contractor has no factual defense to the assessment of liquidated damages, the contractor may still have important legal defenses. 1. Amount of liquidated damages must be reasonable Literally all public construction projects include a liquidated damages clause. As applied, the contractor is assessed a predetermined amount of liquidated damages for every day the contractor is late completing the work. But even if the con- tractor has no factual defense to the assessment (i.e., the contractor has caused the delay), the owner cannot assess liquidated damages unless the amount of liquidated damages is reasonable. In most states, this requires the owner to sub- stantiate two things. Florida law provides a good view of what most states require. First, the owner must normally demonstrate that the actual damages that may arise for late completion “are not readily ascertainable.” See, e.g., Lefemine v. Baron, 573 So.2d 326, 328 (Fla. 1991).The classic example of such damages is “loss of use.” In fact, I believe every DOT liquidated damages clause expressly states that the amount of liquidated damages is based on such “loss of use” or “inconvenience to the public.” So if the project will cause “loss of use,” then the owner may have a legal basis to satisfy this require- ment. By contrast, if there will be no “loss of use” (e.g. the project is outside the limits of public travel), then the owner likely cannot satisfy this requirement. The owner may also not be able to satisfy the “readily ascertainable” requirement if the liquidated damages amount is based on “engineering costs.” That is because such costs can be readily ascertained: preset hourly rates x hours of extra work. Second, the daily liquidated damages amount “must not be so grossly disproportionate to any damages that might reasonably be expected to follow from a breach.” Goldblatt v. C.P. Motion, Inc., 77 So. 3d 798, 800 (Fla. 3d DCA 2011). If the owner cannot provide sufficient evidence of this and that the damages “are not readily ascertain- able,” then “the provision calls for an amount in damages that is excessive or unreasonable, and hence a penalty,” in which case “the provision will not be enforced by the courts.” Secrist v. National Service Industries, Inc., 395 So.2d 1280 (Fla. Dist. Ct. App. 1981). As a potential example, DOT’s typically establish the daily amount of liquidated damages according to the “Original Contract Amount.” Yet the actual damages that may arise because of late completion could be minimal on a large dollar rural project of limited public usage while huge on a small dollar city project located in the middle of downtown. The point is determining the daily liquidated dam- ages amount according to the dollar value of the contract is often arbitrary, and as a consequence, not a legally-justifiable determination. Based onmy experience of over 30 years in public construction, owners typically havenot satisfied the two legal requirements. The reason that owners can anddo assess liquidateddamages notwithstanding this is because contractors are not familiar with these legal requirements and, as a consequence, owners need not justify their assessment of liqui- dated damages. Now that you know the law, con- tractors should request evidence for any proposed assessment on why the actual damages that may arise are “not readily ascertainable” and why the liquidated damages amount is a “reasonable” ap- proximation of actual delay damages. Contractors need to prepare for the typical owner response. Most liquidated damages clauses ex- pressly provide that the liquidated damages are not a “penalty.” But simply saying that does not mean it is true. Unless the owner can provide evidence as detailed above, the owner should not be legally entitled to assess liquidated damages. Contractors should recognize, however, that if the owner cannot assess liquidated damages, it likely can assess extra engineering fees. Given that the amount of extra engineering fees is typically far less than the proposed liquidated damages, the contractor should still save considerable money if it avoids the assessment of liquidated damages. 2. Liquidated damages should not be assessed after substantial completion Along these same lines, it is well-settled on a federal level that liquidated damages cannot be assessed after a project is substantially complete. This axiom is based on the doctrine of “substan- tial completion,” also commonly referred to as the doctrine of “substantial performance.” One federal administrative agency appeal board ex- plained the basis for this doctrine and its place in government construction contracts: How to Avoid the Assessment When You Have Caused the Project Delay By Tom Olson and Anna Richie Tom Olson Anna Richie L A W