08/15/2023

Editor's Notes

Liquidated damages are intended to compensate project owners for the costs they incur due to contractor late completion. It is often difficult to measure and document these damages, so they are contractually “liquidated” in advance and expressed as a fixed daily rate. This does not mean, however, that an owner can just grab a number out of the air and wield it over the head of a tardy contractor.

 

In a recent Georgia case, a municipal project owner stipulated liquidated damages of $1,000 per day for late completion of a neighborhood park, calling it a “standard” daily rate. There was no evidence the owner had attempted to estimate or forecast its actual damages for late completion. The contractor argued it was an unenforceable penalty designed as an incentive for prompt completion.

 

The second case in this issue addressed a performance surety’s coverage dispute with the beneficiary of the bond. The performance bond issued by the surety incorporated the construction contract by reference and the contract included an arbitration clause. Was the surety required to submit the coverage dispute to arbitration? Or, did the arbitration clause apply only to disputes relating to performance of the construction contract?

 

The third case involved a subcontract for custom-fabricated metal components. The subcontract required shop drawings that included 3D models of the components. The models were a stand-alone item in the schedule of values. Could the sub recover payment for the models alone even though the order for the actual components had been cancelled?

 

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