ACPA Concrete Pavement Progress Q1 2020

www.acpa.org Quarter 1, 2020 23 C O N S T R U C T I O N L A W Faced with the reality that performance of a construction contract rarely results in total per- fection, the courts and boards have developed the doctrine of “substantial completion.” Under this doctrine, the harsh penalty of a default termina- tion [or the assessment of liquidated damages] does not lie if the project as built has only minor deviations from the project as described in the specifications. When assessment of liquidated damages is the issue, the test is an evaluation of the nature or work remaining to be done and the extent to which the project is capable of adequately serving the intended purpose. Liquidated damages are intended to compensate for not having the use of a facility, a reasonable approximation of the expected cost to the owner from not having such use. Thus, when use of the facility commences, it is not reasonable to expect those costs to the owner will continue unabated. Two State Constr. Co., DOTCABNos. 78-31, 1006, 1070, and 1081, 81-1 BCA ¶ 15149, at 89428 (1981) (citations omitted) (emphasis added). This is not a recent development in construction contracts. Indeed, as far back as 1869, American courts have followed the doctrine of substantial performance. See, e.g., Swain v. Seamens, 76 U.S. 254 (1869) (“substantial performance . . . is all that is required to satisfy” a building contract). Since at least the early part of the twentieth century, courts have applied the doctrine of substantial performance to liquidated damages provisions in public construction contracts. For example, in Peirce v. United States, 50 Ct. Cl. 371 (1915), a contractor who built a dry dock for the United States Navy sought to recover the liquidated damages withheld on the basis that the dock was substantially complete a month before the Navy began assessing the liquidated damages. Citing Swain, and other federal and state cases recognizing the doctrine of substantial perfor- mance, the Court of Claims held: “According to these authorities, when the dock was reported as ‘practically complete,’ October 1, 1904, there was a substantial completion sufficient to satisfy all the requirements of the law. A claim for liq- uidated damages beginning November 1, 1904, is an absurdity.” Peirce, 50 Ct.Cl. at 371. Notably, the doctrine of substantial completion applies even though the underlying contract also specifies a “completion” date or required “final inspection” to establish that “all the work” is performed and accepted. In Paul A. Teegarden, IBCA 419-1-64, 65-2 BCA ¶ 5273 (1965), the gov- ernment sought to enforce a liquidated damages provision past the substantial completion date based on “Contract Time” and “Final Inspection” clauses requiring completion of the all the work. Teegarden concerned the paving of a road for the National Park Service and the delayed completion of this work. Id. at 139457. Applying the “principle of substantial completion,” the Department of Interior Board of Contract Appeals (“IBCA”) held that the government could not assess liquidated damages after substantial completion. Id. The government moved for reconsideration arguing that the “Contract Time” and “Final Inspection” clauses established the completion date of the contract and also constituted exception to, or waiver of, the substantial completion doctrine. Id . The IBCA, however, affirmed its ruling that no liquidated damages could be assessed after substantial completion and noted that its decision rested on solid authority. Id . at 139457 and 139458. Based on the above, as well as numerous other cases on this issue, there should be no dispute under federal law that liquidated damages cannot be assessed after a project is substantial complete. See, e.g., Labco Constr. Co., AGBCANo. 90-115-1, 94-2 BCA ¶ 26,910, at 1443 (1994) (improper to assess liquidated damages because the project was substantially complete by the scheduled comple- tion date); J.W. Creech, Inc., ASBCA Nos. 45317 and 45454, 94-1 BCA ¶ 26,459, at 12080 (1994) (as a matter of law, liquidated damages may not be assessed under a construction contract where the project is substantially complete); Gaffney Corp., ASBCA Nos. 37639 and 39740, 94-1 BCA ¶ 26,522, at 11957 (1993) (liquidated damages cannot be assessed for any period after substantial completion has occurred and only punch list items remain, even though the government did not take beneficial occupancy until sometime after substantial performance); Seaboard Surety Co., ASBCA No. 43281, 93-1 BCA ¶ 25,510, at 14103 (1992) (liquidated damages may not be assessed under construction contracts after the date the work is substantially completed); Mat- thew Andrew Kalosinakis, ASBCA No. 41337, 91-2 BCA ¶ 23744, at 17664 (1991) (contractor entitled to remission of liquidated damages from date the facility was substantially complete); Brooks Lumber Co., ASBCA No. 40743, 91-2 BCA ¶ 23984, at 17194 (1991) (contractor is not subject to liquidated damages for overruns be- yond the substantial completion of the contract); J.P., Inc., ASBCA No. 32327, 87-1 BCA 19453, at 27004 (1986) (whether liquidated damages were properly assessed depends on date when project was substantially complete); Maysons Piping Contractors, Inc., ASBCANos. 28446 and 29036, 86-1 BCA ¶ 18626, at 29346 (1985) (the rule in construction cases is that liquidated damages are not assessed if the project is substantially complete). Commentators likewise acknowledge the general rule that liquidated damages cannot be assessed for any period subsequent to the date that the work is substantially completed. See McBride & Wachtel, Government Contracts § 34.130; Siegfried, Introduction to Construction Law § 8.03(d) (1987); and Bramble & Callhan, ConstructionDelay Claims § 2.40 (1992) (2d ed.). While there is admittedly few of reported state court decisions on this issue, the same logic should apply equally on non-federal projects. In fact, I have successfully made this legal argument on many non-federal projects in which we coopera- tively resolved the issue outside of litigation. Going a step further, I have successfully argued that no liquidated damages should be assessed if the project starts late, finishes late, but is completed within the contract stipulated number of calendar or working days. In summary, while contractors should always seek to develop factual defenses to the assessment of liquidated damages (i.e. that the delay occurred for reasons beyond the contractor’s control ), con- tractors also should require owners to provide evidence onwhy the proposed assessment is legal justified. You will be surprised how effective this approach works to cooperatively resolve the proposed assessment of liquidated damages. Thomas Olson is the founding partner of Olson Construction Law. Tom’s commitment is to provide guidance on how to resolve issues on the jobsite, not in the courtroom. Tom has worked on highway heavy projects throughout much of the United States for more than thirty years. A prolific speaker and writer as well as attorney, his expertise is in concrete and asphalt paving, utility, earthwork and bridge construction, schedule analysis, material testing, and the technical and legal obligations of both engineers and contractors. Anna Richie is a committed advocate who has exceptional attention to detail and a strong ability to understand relevant facts, contract rights, and law. Anna represents contractors, subcontractors, and suppliers in federal and state court, as well as mediation and arbitration. Anna is experienced in bond and mechanics’ lien claims and has represented clients in disputes involving unmarked and mismarked utilities, design defects, differing site conditions, restricted site access, implied contractual duties, and other contract change issues. ABOUT THE AUTHORS