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Liquidated Damages | Contractual Time Extension, Notice, and Delay Claim Procedures

Posted by Dan Phelps | May 01, 2012 | 0 Comments

California Court nails Contractor with liquidated damages after the fails to follow contractual time extension, notice, and delay Contractor claim procedures.

A 2011 California Court of Appeal opinion gives contractors reason to make sure they follow contractually required notice and delay claims procedures.

Just a few years ago liquidated damages were rarely assessed.  Times have changed.  The economy has impacted the financial condition of many public agencies.  At the same time there has been increased scrutiny of government spending.  As a result, attorneys and their clients are seeing an increase in the assessment of liquidated damages. 

For years concurrent delay has been a defense to the assessment of liquidated damages.  Generally, when a contractor and an owner simultaneously delay the completion of a project, neither party may recover delay damages from the other party.  Likewise, when an owner causes a delay by interfering with the contractor's performance, the owner may not recover damages for that delay.

These defenses used to be available regardless of whether the contractor followed contract procedures for requesting time extensions: “Noncompliance with a provision requiring an application for an extension of time is not a proper basis for holding a contractor liable in liquidated damages for late completion caused by the owner's conduct.”  (Peter Kiewit Sons' Co. v. Pasadena City Junior College Dist.(1963) 59 Cal. 2d 241, 245; 28 Cal. Rptr. 714) This changed with the Court's opinion in Greg Opinski Construction, Inc. v. City of Oakdale(2011) 199 Cal. App. 4th 1107; 132 Cal. Rptr. 3d 170.   

In Opinski the contract required the project to be complete within 300 calendar days.  The project was completed seven months late and the City withheld money claiming it was owed liquidated damages.   

Opinski disputed the City's assessment of liquidated damages.  Opinski argued the City made timely project completion impossiblebecause the City caused delays.  Nonetheless, the court wasn't concerned about which party caused the delay; the court refused to make findings as to the cause and responsibility for the delay.   

What mattered to the court were the contract's change order and claims procedures.   

The contract's change order and claims procedures for time extensions required Opinski to either: (1) obtain a written change order extending time by mutual consent; or (2) submit a written claim requesting a formal decision by the engineer.  Opinski did neither.  The court explained that under these circumstances, “[i]t makes no difference whether Opinski's timely performance was possible or impossible . . .” (Opinski, supra,at p. 1118).   

The court based its decision on Civil Code section 1511, subdivision 1:  

The want of performance of an obligation, or of an offer of performance, in whole or in part, or any delay therein, is excused by the following causes, to the extent to which they operate:

1. When such performance or offer is prevented or delayed by the act of the creditor, or by the operation of law, even though there may have been a stipulation that this shall not be an excuse; however, the parties may expressly require in a contract that the party relying on the provisions of this paragraph give written notice to the other party or parties, within a reasonable time after the occurrence of the event excusing performance, of an intention to claim an extension of time or of an intention to bring suit or of any other similar or related intent, provided the requirement of such notice is reasonable and just. . . [bold font added]

The court ruled that Civil Code section 1511, subdivision 1, allows contracting parties to allocate the risk of delay costs to the contractor – “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.”  (Opinski, supra,at p. 1118).       

There are a couple of important points to know about Opinskiand Civil Code section 1511.  First, Opinskiand section 1511 apply to private as well as public projects.   

Second, the “reasonable time after the occurrence of the event excusing performance” referred to in Civil Code section 1511 will probably be the time agreed to in the contract for giving any type of notice of delay, notice of discovery of differing site conditions, or notice of unforeseen conditions.   

Finally, the good news is there's nothing new about what contractors need to do to avoid the problems associated with Opinskiand Civil Code section 1511.  Give contractually required written notices in a timely manner and follow change order and claims procedures to the letter.   

Attention must also be paid to schedule requirements.  Many specifications require submission of a time impact analysis within a few days of the occurrence of a delay.  The time impact analysis might be construed as both a form of notice and a claim/change order procedure.    

About the Author

Dan Phelps

Daniel J. Phelps is a contractor and construction attorney.  His practice is focused on litigating construction contract claims. For more than 25 years he has been dedicated to the construction industry.  He has years of experience working on claims arising out of construction projects. Mr. Ph...

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