If you have ever worked on a public works project you have probably run across a liquidated damage clause in your contract. Such clauses, which are often found in, but are not limited to public works contracts, provide that a contractor will be assessed an amount of agreed to (i.e., liquidated) damages, typically a set dollar amount per day, for each day that a project remains uncompleted after the deadline for project completion. Liquidated damages are intended to compensate a project owner for damages due to project delays which would otherwise be difficult to determine such as the amount of lost rents or profits which could have been derived had the project been completed on time.
In Greg Opinski Construction, Inc. v. City of Oakdale, 2011 WL 4625304 (October 11, 2011), the California Court of Appeals for the Fifth District highlighted the importance for contractors to request extensions to the project schedule in accordance with the procedures set forth in the contract or risk the imposition of liquidated damages. The contractor, Greg Opinski Construction, Inc. (“Opinski”), entered into a public works contract with the City of Oakdale (“City”). The contract required that the project be completed within 300 calendar days of issuance of a notice to proceed and provided for liquidated damages of $250 for each day the project was not completed after the deadline for project completion. According to the architect’s certification of substantial completion, the project was not substantially completed until more than seven months after the deadline for project completion resulting in liquidated damages of $54,000.
Opinski, relying on a California Supreme Court decision, Peter Kiewitt Sons’ Co. v. Pasadena Junior College District, 59 Cal.2d 241 (1963) – in which the Supreme Court held that a project owner was not entitled to liquidated damages if the owner was the cause of the delay even though the contractor failed to request an extension to the project schedule according to the procedures set forth in the contract – argued that, while it had not met the project completion deadline, and had not requested an extension of the project schedule according to the procedures set forth in the contract, the delays were caused by the City and under the Supreme Court’s holding in Peter Kiewit the City was therefore not entitled to liquidated damages.
The Court of Appeals disagreed. Citing an amendment to California Civil Code section 1511 which was enacted after the Supreme Court’s decision in Peter Kiewitt, the Court of Appeals held that a contractor who fails to request an extension to the project schedule in accordance with the procedures set forth in the contract bears the risk of liquidated damages “even for delays beyond the contractor’s control”:
If the contractor wished to claim it needed an extension of time because of delays caused by the city, the contractor was required to obtain a written change order by mutual consent or submit a claim in writing requesting a formal decision by the engineer. It did neither. . . . It makes no difference whether Opinski’s timely performance was possible or impossible under these circumstances. The purpose of contract provisions of the type authorized by the 1965 amendment to Civil Code section 1511, subdivision 1, is to allocate to the contractor the risk of delay costs – even for delays beyond the contractor’s control – unless the contractor follows the required procedures for notifying the owner of its intent to claim a right to an extension.
There are several take aways from the case. First, make sure you thoroughly read your contracts, even before a dispute arises, because by the time a dispute does arise it may be too late. Second, strictly follow the terms of the contract, not only for extending project schedules, but all other terms of the contract. The most troubling take away for contractors, however, is that if you don’t strictly comply with the terms of your contract you may, as Opinski found out, be liable for liquidated damages even for delays you did not cause.