Have You Given Proper Notice Of The Delay? California Appellate Court Permits Assessment Of Liquidated Damages Due To Contractor’s Failure To Give Notice Of Delay.

Have You Given Proper Notice of The Delay? California Appellate Court Permits Assessment of Liquidated Damages Due to Contractor’s Failure To Give Notice of Delay.

By William C. Last, Jr. and Jonathan M. Bowne

In a case entitled Greg Opinski Construction v. City of Oakdale, 199 Cal.App.4th 1107 (2011) a California Appellate Court held that when a construction contract requires notice be given as a condition for getting an extension of time and notice is not given, the contractor cannot later claim that the delay was caused by the owner. This is noteworthy since it refutes prior precedent that allowed a contractor to assert that the liquidated damages should not be assessed since the public entity delayed the project during a period of owner caused delay.

The facts of Opinski and the terms of the contract in question are typical. This was a public works project and the prime contract included the following relevant terms:

  • A completion deadline;
  • Liquidated damages for each day of delay;
  • That the completion date could only be extended via signed change orders;
  • That the project engineer could direct changes in the completion deadline, and that the parties could lodge a claim with the engineer for such a change;
  • That an engineer claim was to be made, “promptly (but in no event later than thirty days) after the occurrence of the event giving rise thereto....” The data supporting the claim had to be submitted within sixty (60) days of the occurrence;
  • That time extensions for delays “beyond the control” of the contractor would be granted, including owner or weather caused delays.

Difficulties were encountered on the project and it finished seven (7) months late. While the contractor later argued that the delays were beyond its control (which, if true, would have justified a time extension) it never secured a written time extension change order and/or never timely made a claim to the engineer for an extension.

Following completion the owner assessed liquidated damage and on this basis withheld the contractor’s retention. The case ended up in court, with the prime contractor seeking his retention and the owner counter-suing for liquidated damages.

The contractor argued that the delays were caused by the owner, thereby justifying a schedule extension, and making liquidated damages unwarranted. The owner argued that it was irrelevant who caused the delays because the contract provided that schedule extensions could only be secured via written change orders and engineer claims, neither of which had occurred on this project. The trial court sided with the owner and awarded liquidated damages, and the contractor responded by appealing the ruling.

The contractor relied on Civil Code 1511 and a landmark case interpreting Section 1511 relative to delay/liquidated damage claims on construction projects, called Peter Kiewit Sons’ Co. v. Pasadena City Junior College, 59 Cal.2d 241 (1963). Section 1511 governs when parties in certain contract disputes are excused from performing the terms of the contract. Section 1511 provides that performance is excused when one party is prevented from performing by the other party. In Peter Kiewit the court confirmed that this provision excused a contractor from meeting a completion deadline (and therefore being subject to liquidated damages) when delays were caused by the owner (i.e. the owner prevented the contractor from completing work on time).

The appeals court dismissed this argument and distinguished Peter Kiewit by noting that Section 1511 was amended two years after the Peter Kiewit decision to include a provision that the parties could agree in their contract that written notice could be required,

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.

The appeals court reasoned that this amendment to Section 1511 operated to invalidate the Peter Kiewit holding, and that the notice and claims provisions in the prime contract in this instance were exactly the type “intention to claim” provisions contemplated in the said amendment.

On this basis the appeals court affirmed the trial court ruling and held that the contractor should have timely made a claim for an extension if it wished to avail itself of the argument that the liquidated damages were not justified because the owner caused of the delays.

This decision could have a significant impact on disputes concerning project delays and liquidated damages. While most sophisticated construction contracts include claim provisions relative to schedule extensions for non-contractor cause delays, these provisions are often time ignored by the parties. Many contractors operate under the assumption that regardless of the “fine print” in their contracts requiring notice of delay events, that ultimately a change order or favorable court judgment can eventually be secured so long as the contractor can prove that the owner (or non-contractor caused factors) caused the delay. The Opinski decision makes it clear that simply having the facts on your side is not enough, and that the technical requirements of the “fine print” claim provisions must be complied with.

Perhaps the most problematic element of the Opinski decision is that it fails to consider that schedule delays are not always discrete events which can be quickly and feasibly stated in a claim. As contractors know, delays can routinely materialize out of a combination of factors, and it’s not always immediately apparent that events will impact the schedule. Often, by the time delays become evident, the short notice period to make a claim has already expired. Also, it’s not always possible for contractor’s to devote the resources required to notice and document claims during the project.

Nonetheless, in light of Opinski contractors need to make it policy to review closely the claims provisions in their contracts and ensure that they comply with requirements, including meeting any notice requirements set for therein.

This article, ©2011, was written by William C. Last, Jr. and Jonathan M. Bowne.Mr. Last is an attorney who has been specializing in Construction Law for over 32 years. In addition to belonging to a number of construction trade associations, Mr. Last holds a California “A” and “B” license. He can be contacted at 415-764-1990 or 650-696-8350. A number of his past articles can be found on his website (lhfconstructlaw.com). This bulletin is published periodically to provide general information about current legal issues. The articles are not intended to be a substitute for the advice of an attorney as to a specific problem. If you have a specific legal question or need legal advice, you should contact an attorney.