Construction Law Blog
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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.
Teaming agreements are arrangements entered into by two or more independent companies for the purpose of procuring and performing competitively-bid contracts. Such arrangements are generally formed so that contractors-who on their own would be unable to meet the bid requirements-can combine their respective expertise to compete in the realm of complex design and construction projects. The companies' expertise are generally complimentary rather than competitive, which offers owners the "best combination of performance, cost, and delivery for the services being sought."[i]
[i] R. Fazio, J. Killian, "Creating and Enforcing Teaming Agreements," Construction Law, Spring 2005, at 5.
A recent appellate decision leaves federal contractors in a lurch when trying to assess the risk faced after defrauding the government, whether accidentally or otherwise. Federal law requires the U.S. Court of Federal Claims to declare “forfeiture” for any person who even attempts to defraud the United States Government. See 28 USC § 2514. Forfeiture means that the defrauding party loses its rights under the contract, which almost always means a contractor loses its right to payment. Unfortunately, the statute does not explain how the forfeiture penalty should be applied or how its application may change when different types of fraudulent conduct are involved. Recent court decisions have left the issue unresolved.
The Port of Seattle recently awarded a design-build contract to Clark Construction for the new International Terminal at Sea-Tac Airport. The construction contract will be worth as much as $407 million dollars when it is finally negotiated. Clark Construction also built Concourse A for the Port in 2004.
We get more calls and are asked to review more contracts involving "indemnity" than any other construction issue. Indemnification, despite the legal mystery behind the concept, is actually quite simple. It involves an obligation by one person to provide compensation to another for a claim brought or loss suffered by a third person. Generally, in construction contracts, the owner requires the contractor to indemnify it in the event of a personal injury or property damage suffered by a third person whose damages arise out of construction operations. Oregon has a law, similar to many other states (including Washington and Alaska), prohibiting overbroad indemnity provisions in construction contracts. In the case of Montara Owners Ass'n v. La Noue Development, LLC, the Oregon Supreme Court ruled that an arguably overbroad indemnity provision is to be enforced within the statutory constraints rather than being entirely invalidated. The Court concluded that two sections of the anti-indemnity law, read together, had the effect of "saving" the overbroad indemnity clause.
Subcontractor Default Insurance ("SDI") continues to capture market popularity since its invention by the Zurich Insurance Company under the name SubGuard. SDI is an alternative to traditional surety bonding that provides the general contractor ("GC") protection from subcontractor default through a two-party contract (the GC and the insurer).
Readers of this blog are aware that we have been tracking and ranting about the poor condition of our national infrastructure since the blog’s inception. In May 2013, a truck carrying an oversize load collided with the “fracture/critical” I-5 bridge over the Skagit River near Mount Vernon and brought home to everyone the dismal condition of bridges, highways, power, water, and sewer infrastructure.
In a recent case, the Washington State Supreme Court examined the question of whether a city or town’s zoning regulations can take precedence over activities that are permitted under state law. The issue arose from the City of Kent’s efforts to prohibit collective gardens that were authorized by the pre-2015 version of RCW Chapter 69.51A, the Medical Use of Cannabis Act (MUCA).
There were a few developments this month in the federal government procurement arena that are likely of interest to our readers:
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.