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.

Traditional architectural services should be included in the “licensed professional services” exception to liability under a state consumer fraud statute. But if an architect engages in the promotion or marketing of real estate, the exception will not apply.

The use of unlicensed trade subcontractors can be potent ammunition when a project owner asserts claims against a contractor for deficient work. How should this evidence be treated when the claimant attempts to use it to influence the fact finder?

A condominium association sued the builder of the project for defective construction. Statements indicating the unlicensed status of two key subcontractors were admitted into evidence during the jury trial. However, the trial judge refused to instruct the jury that the use of unlicensed subs was permissible.

The other case in this issue involves a written subcontract agreement that was never signed by either party. The contractor and subcontractor signed eight change orders, each of which referenced the unsigned subcontract. Was the arbitration clause in the subcontract binding on the parties?

While a state statute authorized the use of unlicensed subcontractors working under the supervision of a licensed contractor, a builder accused of deficient work was not entitled to a jury instruction to the effect that its use of unlicensed trade subs had been permissible.

Executed bilateral change orders incorporated the terms of an unsigned subcontract. Consequently, an arbitration clause in the subcontract agreement was binding on the parties.

The AIA General Conditions address the risk of casualty loss to property during construction. One of the parties agrees to maintain “all-risk” casualty insurance until completion and acceptance of the project. And, the parties agree to a reciprocal waiver of claims for damage “covered by property insurance,” which applies to subcontractors, employees, agents, etc., of each party. This leads to a question: When a casualty loss is less than the deductible amount of the policy, is the loss covered by property insurance?

The owner of a project in Indiana elected to carry property insurance with a very large deductible. A $1 million casualty loss, allegedly caused by subcontractors, was well within the deductible, so the insurance company made no payment. The subcontractors argued the loss had been “covered” because it resulted from a risk stipulated in the policy. The project owner and its prime contractor argued the waiver did not apply because the insurer made no payment for the loss.

The second case in this issue involved an alleged misrepresentation of custom fabricated windows. The project owner argued promotional material had represented crafting of individual items and testing for compliance with certain standard specifications. The supplier responded the language was merely “advertising puffery.”

The third case addressed delay damage claims disguised as change order requests. A New York court ruled the contractor could not use this device to avoid the consequences of an enforceable no-damages-for-delay clause.

Although the casualty loss to a project was below the deductible stipulated in the owner’s “all-risk” insurance policy, the project owner was the insurer of the deductible and the reciprocal waiver of claims in the AIA General Conditions applied.

A manufacturer did not violate a consumer fraud statute when it said its products were individually crafted. Nor did an industry certification suggest each custom product was independently tested.