Public Owner Recovers Liquidated Damages Even After Terminating Contractor for Convenience
You can’t have your cake and eat it too. That’s no fun! Why even get the cake if you are not allowed to eat it? Recently, a court held that a public owner could have both a termination for convenience, as well as liquidated damages.
In Old Colony Construction, LLC v. Southington, 316 Conn. 202 (2015), the Connecticut Supreme Court concluded that a contractor was liable for liquidated damages for project delays after being terminated for convenience, even where the project owner was partially responsible for the delays.
Since the contract expressly provided that the town could terminate the contract without cause and without prejudice to any of its other rights or remedies, the court held that the town’s termination of the contractor for convenience did not preclude recovery of liquidated damages. The modern legal trend favors apportionment of liquidated damages where there is owner-caused delay, in particular where the liquidated damages clause provides a mechanism to extend the contract completion date, thereby reducing potential liquidated damages for delays not attributable to the contractor.
There is a lot more to this story, and you should read the court’s opinion for a lengthy discussion about waiver of liquidated damage provisions, entitlement to equitable adjustments, and remedies available with a termination for convenience. However, if you are a contractor that regularly works with public owners, you should make sure to do the following:
- Read your contract. While public owners rarely allow for any type of negotiation, you are well advised to read your contract in its entirety before you submit a bid, as you begin construction, throughout performance, and as soon as dispute arise.
- Document your claims. One of the reasons the contractor failed on its claim for additional time was the lack of contractually required notice. If you don’t follow the written notice requirements, you will likely lose on those claims.
- Expect the unexpected. While the result in Old Colony may seem like a double recovery, it appears fully consistent with the law in Connecticut that allows pursuit of numerous remedies in the event of a default. Again, the contract expressly stated that a termination for convenience would not affect the town’s other rights.