Liquidated damages for late completion are a contractually stipulated form of delay damages. And, recovery of duplicative damages is prohibited, as it provides a payment windfall in excess of actual damages. A prime contractor’s recovery from a defaulted subcontractor recently provided an interesting application of these principles.

The subcontract did not include a liquidated damages clause, but it did contain a “pass-through” provision—any liquidated damages assessed by the project owner against the prime contractor as a result of the subcontractor’s slow performance were the responsibility of the subcontractor. The subcontract also said the tardy sub would owe the contractor for “extended project overhead.”

The subcontractor argued that the liquidated damages pass-through and assessment for extended overhead amounted to double recovery. The contractor responded that the extended overhead constituted an element of delay damages distinct from the pass-through.

The second case in this issue involves the “cost of repair” measure of damages on a cost-plus contract. The defaulted contractor argued this was not a fixed-price contract where the owner received a defined project for a set price; rather, the owner was responsible for the cost of the work even if it was in need of repair.

The third case addresses the government’s sovereign act of closing access to a military base during the COVID-19 pandemic. While the contractor could not recover increased on-site costs from the government, questions arose about the increased costs of off-site work the contractor could have performed notwithstanding the closure.

A subcontract pass-through of liquidated damages assessed against the prime contractor was a separate element of damages from the contractor’s extended project overhead.

“Cost of repair” is a permissible measure of damages for defective work on a cost-plus contract. The owners reasonably expected workmanlike performance and should not be held responsible for the cost of remediation.

A contractor could not pursue a claim for increased on-site costs caused by denial of access to a base, but it could pursue claims for increased off-site costs and logistical costs when access was later granted.

Bidders on public works contracts are regularly asked to submit additional documents with their bids. The number and complexity of these submissions increase with evolving procurement statutes and regulations. It’s not surprising that bidders start to think of them as “standard boilerplate”—the bid price is firm, but the other stuff can be cleaned up after bid opening. That may or may not be accurate.

In a recent New Jersey case, an appellate court upheld rejection of a low bid because the bid bond bore a date prior to the extended deadline for bid opening. Rejection of the second low bid was also upheld because the accompanying certificate of uncompleted work was pre-dated. In each case, the deviation was material and could not be waived. The information could not be corrected or supplemented after bid opening.

In the other case in this issue, the South Dakota Supreme Court addressed for the first time the need for expert opinion to support a project owner’s claims against design professionals and a specialty constructor.

A low bid was nonresponsive due to a bid bond that pre-dated the bid opening date. A second low bid was nonresponsive due to a certification of uncompleted work that similarly pre-dated the bid opening date.

Expert testimony was required to maintain claims against an architect, an engineer, and a specialty trade contractor. The project owner’s CEO did not qualify, as he was not a licensed design professional and had no experience in the trade work in question.

Liquidated damages for late completion of a construction project are generally enforceable if the daily amount set at the time of contract formation represents a reasonable estimation of the actual damages the owner will incur in the event of late completion. A Texas court recently addressed a situation in which the owner’s contractual calculation for liquidated damages appeared arbitrary.

The municipal project owner had stipulated a daily rate of $5,000 but offered no explanation of how that amount had been calculated. The owner relied solely on the contractual recitation that the contractor agreed the amount was a reasonable estimation of actual damages. Additionally, municipal officials repeatedly made public statements that the amount was a “penalty” that should “motivate” the contractor.

The second case in this issue involves the state residency of construction companies that are limited liability corporations. A federal appeals court ruled an LLC can establish state residency only if each individual member of the LLC is a resident of that state.

The third case considers the professional services exception to a state consumer fraud statute. An architect is exempt when providing traditional architectural services. There is no exception, however, if the architect engages in the marketing or promotion of real estate.

A liquidated damages clause was unenforceable because there was no evidence the project owner had made a reasonable calculation, prior to contract award, of the actual damages the owner might incur as a result of late completion. The contractor’s contractual agreement to the daily rate, in itself, was insufficient.

In order to establish “diversity” of citizenship for purposes of federal court jurisdiction, an LLC had to show the residency of each individual member.