Volume 7 - Number 46 | November 23, 2009 - Construction Claims Advisor

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You are here: Home » Volume 7 - Number 46 | November 23, 2009

Volume 7 - Number 46 | November 23, 2009

EDITOR'S NOTES | Issue 7-46: Liquidated damages for contractors' late completion of projects frequently prove contentious. A contractor is aware of the stipulation when signing the contract. But when faced with the withholding of a substantial liquidated damages assessment, the contractor usually argues the delay was not its fault and the liquidated damages clause is unenforceable.

This was the scenario in a recent case in which a power plant contract called for liquidated damages of $49,000 per day for each of three turbines. Even after being credited for excusable delay, the contractor faced more than $26 million in liquidated damages withholding. The contractor argued this was an unenforceable penalty -- the liquidated damages assessment greatly exceeded the project owner's actual cost of late completion and provided a windfall. The contractor's argument failed and the owner kept the liquidated damages.

Other cases reported this week involved bid responsiveness and the proper notice of appeal on a federal claim. A Florida court ruled that the failure to list prior projects rendered a low bid nonresponsive. And, the Armed Services Board said no particular form or language is needed for a contractor to invoke its appeal rights.

LIQUIDATED DAMAGES OF $26.9 MILLION WERE NOT AN UNENFORCEABLE PENALTY: Liquidated damages of $49,000 per day for each of three turbines were not an unenforceable penalty. Although the total liquidated damages assessment, $26.9 million, may have exceeded the actual damages incurred by the power plant owner because of late completion, the amount represented a reasonable forecast of damages at the time of contract formation.

BID NONRESPONSIVE DUE TO FAILURE TO LIST PRIOR PROJECTS: A solicitation requirement that bidders list relevant projects previously performed related to bid responsiveness. A low bid was properly rejected as nonresponsive for failure to comply.

APPEAL RIGHTS DETERMINED BY CONTRACTOR’S CLAIM SUBMITTAL: No particular form or language is required for a contractor to invoke its appeal rights after the denial of a claim by the government contracting officer. It is the information in the claim itself, not the notice of appeal, that is determinative.