Construction Law Blog
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Another court in Washington was asked to apply the Mike M. Johnson[i] decision to a contractor’s claim for extra work. This time it was the Division III Court of Appeals in Washington. The Division III Court of Appeals, which covers all of Eastern Washington, had a hand in the original Mike M. Johnson case. That court is the intermediary court that ruled in favor of the contractor in Mike M. Johnson. It held that there were issues of fact as to whether Spokane County, in the Mike M. Johnson case, had actual notice of the changed conditions and, thus, waived the notice and claim procedures that the County was attempting to rely upon. The Division III Court of Appeals was later overruled by the Washington State Supreme Court, which held as a matter of law that the County of Spokane had not waived the notice and claim procedures. This time around, the Division III Court of Appeals, for the most part, ruled in favor of the public entity and followed the Mike M. Johnson decision.
As discussed in previous blog posts, a Termination for Convenience (“TforC”) clause allows a party (generally, the owner or general contractor) to stop work for just about any reason without having to pay for anticipated profit or unperformed work. Read more here and here. Recently, the Washington Court of Appeals decided SAK & Associates, Inc. v. Ferguson Construction, Inc. in which the Court held that all that is required to trigger a TforC clause is a statement that termination is being invoked for the convenience of the terminating party. Read more here.
Contractors Should Limit Their Exposure to Consequential Damages and Ensure Liquidated Damages are the Owner’s Sole and Exclusive Remedy
There is some confusion in construction about the terms “liquidated damages” and “consequential damages,” so brief definitions are in order:
- “Liquidated damages” (sometimes called “stipulated damages”) are damage amounts the parties designate in the contract for the injured party (Owner) to collect as compensation for breach of contract, and are someimtes tied to project completion or milestone dates.
- “Consequential damages” are losses that do not flow directly and immediately from the breach of contract, but result indirectly from the breach. For example, in hotel construction, if the hotel does not open on time, consequential damages could be the revenue lost by the hotel operator.
A Contractor should be aware of the relationship between liquidated damages and consequential damages. These concepts are mutually exclusive. Owners should provide for one or the other, but not both. Liquidated damages are essentially a type of consequential damages, but are intended to provide certainty by removing the difficulty of proving damages. Generally, liquidated damages should replace consequential damages, not supplement them.
The Alaskan Way Tunnel Project remains front and center in the news. Hardly a day goes by when we are not bombarded with an article about the status of the tunnel project. As it sits now, tunneling is to resume in November of 2015, pushing the completion of the project back until March of 2018. In May, the contractor, Seattle Tunnel Partners (STP), received a favorable recommendation from the Dispute Review Board (DRB) that the eight-inch steel well casing, which STP claimed shut down the Tunnel Boring Machine (TBM), was a differing site condition. Recently KCPQ-TV’s Brandi Kruse interviewed Gov. Inslee concerning the tunnel to replace Seattle’s aging Alaskan Way Viaduct. The interview was interesting because it provided a subtle preview as to Washington State’s stance as to its defenses against the tunnel contractor’s potential differing site conditions claim.
There are many economic advantages to the acceleration and early completion of a project. By completing a project earlier than the contract completion date, a contractor is able to reduce the project overhead costs, and therefore maximize revenue. The owner, in turn, benefits from the contractor's ability to bid the project at a reduced price, which reflects the reduced overhead anticipated by early completion. Thus, the economic advantages of a contractor's early completion are generally experienced by all parties. An early completion schedule, however, also reduces the amount of float available to the project.[i]
Early this month, the three-member Board appointed by the Washington State Department of Transportation (“WSDOT”) and Seattle Tunnel Partners (“STP”) to assist in resolving contractual disputes on the Alaskan Way Viaduct Replacement Project issued its latest recommendation. The question before the Board was narrow in scope: was an eight-inch steel well-casing within the work zone adequately identified in the contract? The Board determined that the well-casing was clearly identified in the contract, but the contract documents did not clearly identify that the casing was made of steel. The DRB’s recommendation was that the contractor encountered a differing site condition.
The simple definition of a concurrent delay on a construction project is the occurrence of two or more independent delay events within the same period of time or delay period. See previous post on the same topic: Allocation of Concurrent Delay Damages on Construction Projects. Concurrent delays can affect both the Owner and Contractor or the Contractor and a Subcontractor. The delay events can then relate to one activity or multiple activities. Concurrent delays may affect a Contractor’s or Subcontractor’s claim if one delay event is excusable (as in an event for which a time extension is provided, but no damages are due – i.e. a weather event) and the other is not (as in an event for which compensable is due – i.e. a change in scope).
Since December 2013, the tunnel boring machine ("TBM") known as "Bertha," built by Hitachi Zosen Corp. in Osaka, Japan, has been stuck under Seattle's waterfront about 1,000 feet from where it began. We have previously updated our readers on Bertha's progress with posts, including, STP’s Plan to Fix Bertha, Bertha and Brenda, and Big Bertha Stuck. As background, Bertha is the TBM digging the $2 billion tunnel designed to replace the aging Alaskan Way Viaduct that was damaged in the 2001 Nisqually earthquake.
This is the second installment of a two-part blog informing contractors how they can limit their exposure to owner's project delay damages. Part I of this blog series discussed how utilizing well-drafted liquidated damages clauses can protect a contractor from potentially limitless actual damages. Part II discusses the use of consequential damages waivers and limitation of liability clauses as measures to reduce a contractor's risk and exposure to delay damages.
This is part one of a two-part blog series informing contractors how they can limit their exposure to owner's project delay damages, which in many instances may exceed the fee the contractor might otherwise make on the construction project. Part I of this blog series discusses how utilizing well-drafted liquidated damages clauses can protect a contractor from potentially limitless actual damages.