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Real Property & Development Review

Recovery of Liquidated Damages Does Not Require Actual Damages

Posted in Construction

Here’s an interesting argument:

If the government doesn’t suffer actual damages, then a liquidated damages provision constitutes a penalty, making the LD provision unenforceable.

Creative….but wrong.

In M. Maropakis Carpentry, Inc. v. U.S., 84 Fed.Cl. 182 (2008), the contractor failed to commence construction of a Navy Warehouse building until after the scheduled completion date.  The contractor filed a claim alleging that the government was responsible for the delay.  In response, the government filed a counterclaim pointing the finger back at the contractor and seeking liquidated damages for the delay.

On summary judgment, the court rejected the contractor’s argument that the LD clause is unenforceable because the government suffered no harm as a result of the delay.  Unfortunately for the contractor, the court held that LD clauses are enforceable even without actual damages because LDs are not measured by actual harm.

Rather, LDs are agreed to prospectively at an estimated per diem amount, whereby the owner assumes the risk that delay damages may exceed the agreed amount and the contractor assumes the risk that the delay damages -if any- will be less than agreed amount.

The moral of the story is two-fold:

1.  Government contract law is such that enforcement of a liquidated damages provision is NOT contingent on the government suffering actual damages; and

2.  Beware -and anticipate- that you are exposing yourself to counterclaims any time you file a complaint (in the government contracts world and otherwise).  It is common (but not always the case) that an owner will not seek LDs if the contractor forgoes its delay claim…..