Subcontracts usually contain “flow-down” language imposing the prime contractor’s obligations to the project owner on the subcontractor. Subcontracts also frequently contain broad indemnification clauses. The sub agrees to pay the contractor for any losses or damages caused by the subcontractor’s violation of the subcontract. These clauses raise some interesting issues regarding the liquidated damages clause in the prime contract.
Liquidated damages are supposed to be a reasonable estimate of the actual damages the owner anticipates as a result of late project completion. Otherwise, they are considered an impermissible penalty. If a daily rate of $3,000 is passed through to a tardy subcontractor performing only a minor aspect of the work, is this contract clause enforceable?
The second case in this issue addressed the duration of a government-directed suspension of work. If reasonable, the suspension would not be compensable. But, without consideration of adverse weather days assigned to the contractor under the contract, was a 49-day suspension reasonable under the circumstances?
The third case involved a low bid submitted by a joint venture. The two joint-venture partners were both properly registered public works contractors as required by state law, but the joint venture itself had not been separately registered. Was the low bid responsive?
