Liquidated Damages

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Author Message Jeremy Shelton Intermediate Member Username: jashelton98 Post Number: 4 Registered: 10-2015 Posted on Friday, April 26, 2019 - 01:59 pm:    I am looking for any advice / experience with liquidated damages. I am working on a project that is supposed to substantially complete at the end of the month and the contractor's current schedule shows them at least 30 days late. The contract includes $1000 per day liquidated damages clause. The contractor feels the owner has caused the delay while the owner feels its all the contractor's fault and is stating they will enforce the liquidated damages clause. the truth is probably somewhere in the middle. The owner is asking that we begin withholding the value of each late date from future pay applications. Is this even permitted? How have others dealt with this situation? David R. Combs, Assoc. AIA, CSI, CCCA, LEED AP Senior Member Username: davidc Post Number: 12 Registered: 02-2015 Posted on Friday, April 26, 2019 - 06:24 pm:    Jeremy, First, each side is required to make their case - via proper backup documentation - that they have been delayed by the other party, why, and for how long. Depending on the number or extent of the delays, and their alleged causes, the supporting documentation could be quite extensive. . Second - who has been designated as the "Initial Decision Maker" (assuming AIA contracts and General Conditions have been used) to review and decide on all claims? For AIA docs, the default is the Architect unless otherwise designated in the Agreements by the Owner. If the Owner wrote their own Agreements, then they probably - in my experience - make no mention of the IDM, so it still defaults to the Architect. . So the next question is - Were delay claims formally submitted by any or either party? Were they submitted timely (per the General Conditions)? Do they have sufficient back-up documentation to facilitate a proper review and decision by the Architect? Basically, there are quite a few steps before one gets to the assessment of LD stage. . Regarding "is this even permitted?" - The first place I would look is the Owner-Contractor Agreement and the General Conditions. It's usual and customary for those documents to contain at least some mention of LD, possibly even some procedural matters. Among them would be how the LDs are assessed (i.e. Owner withholding partial payment, or other means). And please note: the Architect doesn't withhold, the Owner does. The Architect merely certifies for a lesser amount. A cover letter explaining the Certification for a Lesser Amount would be appropriate in this instance. Please be sure to mention that the withholding for a lesser amount is being done at the Owner's request/direction. HOWEVER, if no delay claim has been properly asserted and substantiated by the Owner, their withholding may be deemed arbitrary, and therefore a breach of contract. Tread carefully in the LEGAL waters. Seek advice from Counsel if you're unsure how to proceed. . There may also even be (in those same Documents) the Contractor's recourse if they object to withholding. Expect them to fight back. They and their wallet are being backed into a corner, and they will certainly come out swinging. To this end, expect the Architect to get thrown under the bus for bad documents, excessive RFIs, delays in return of submittals or RFIs, etc., as they will exert any and all efforts to deflect blame (to avoid having to pay). . Bottom line: Plan on the issue getting messy. Neither side is (or will be) happy probably for the balance of the construction. If that's as bad as it gets, count yourself lucky. David R. Combs, Assoc. AIA, CSI, CCCA, LEED AP Associate Principal Technical Director Nathan Woods, CSI, CCCA, LEED AP Senior Member Username: nwoods Post Number: 765 Registered: 08-2005 Posted on Friday, April 26, 2019 - 07:12 pm:    David is 100% correct in all that he wrote, particularly about the blowback onto the Architect. Has the Contractor submitted any change orders for time extension? If not, he has no claim from a technical basis. He may still make a claim, but if he hasn’t yet, his argument looks weak. How has time delay been tracked and documented thus far? Discussed in meeting minutes? That could be helpful. Is there a CM? What about retainage? Is there enough Contractors Overhead & Profit in the retainage number to cover the LD’s? For sure, you don’t want to penalize any sub contractors unnecessarily by withholding retainage, but you can line out the GC’s portion during pay app review or announce a retainage meeting and discuss the options on how LD’s might be applied. In my opinion, $30k is a tiny number, it doesn’t seem like something worth fighting over. You could easily spend way more than that in foresnic scheduling review just trying to determine validity of the contractors counter claim. Of course, I don’t know the value of the project and if there was any REW harm done to the Owner with late delivery. There are other non-cash options you might consider, such as extended warranty periods, slight increases in scope, or rework of a potential contentious punchlist issue that everyone can agree too instead of applying LD’s. Whatever you do, document document document.! Mark Gilligan SE, Senior Member Username: mark_gilligan Post Number: 878 Registered: 10-2007 Posted on Friday, April 26, 2019 - 10:56 pm:    Given the likelihood that this could get messy suggest that you advise the Owner to talk with an attorney. You may also want to consult with your attorney. Given that you have clear instructions from the Client I do not see why you would be liable unless you had a separate duty to the Contractor that would result in a contrary position. anon (Unregistered Guest) Unregistered guest Posted on Monday, April 29, 2019 - 06:03 pm:    Mark, Why would OP need to consult with an attorney when he has the good folks on this forum to provide information? I find your advice to posters on this forum entirely too sensible and pragmatic [grins].