LEGAL ISSUES


When Is the Owner Too Late to Complain That the Contractor Built Too Late?


By Ronald B. Pierce, RB PIERCE, A Professional Law Corporation I


f time was critically important (legally, “of the essence”) to a construction project, and if the


owner lost revenue, lost use of property, or incurred other damages because the contractor finished promised construction late, California law often allows the owner to recover monetary damages from the contractor. Moreover, to simplify the process


and to facilitate its recovery of potential and future delay costs, before construction starts and before anything is behind any schedule, the owner may pre-set (thus, “liquidate”) an estimated cash sum in the construction contract for the negative financial impact (“damages”) that the owner reasonably expects to incur, daily, on average,


upon overdue completion. California law enforces such liquidated damage clauses, and they can allow the owner to avoid proving the fact and amount of actual harm caused by the contrac- tor’s tardy delivery. Typically, liquidated damage


clauses provide that the owner may assess a stipulated, agreed, or stated amount. (For public contracts, consent is based upon the contractor signing the contract, not because the term was actually discussed, negotiated, or negotiable by the parties.) Te owner may also withhold the assessed amount from progress payments for each day that the work remains incomplete after a required completion date. (Usually, liquidated damages are based upon late completion of construction work, not upon late starts.)


Approximated Losses Allowed


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fuzzy, approximated losses for future delay that are uncertain in precise amount. As one California Court of Appeal explained, “Liqui- dated damage clauses in public contracts are frequently validated precisely because delay in the completion of projects such as highways ‘would cause incalculable inconvenience and damage to the public.’... Tus, it is accepted that damage in the nature of inconve- nience and loss of use by the public are real but often,


as a matter of law, not measurable.” Such agreed, daily damages usually make the owner’s calculation easier, and less subject to dispute, than an assertion of damages actually incurred. California legal requirements for


how the owner may write a valid and enforceable clause, how delay may be apportioned and many related issues go well beyond this short article. However, notwithstanding liqui-


dated damage clauses’ broad use and acceptance, and even if the owner writes a specific clause that meets California legal standards for such clauses, not every California public entity can impose and enforce liqui- dated damages every time that any contractor is late in finishing its work. Instead, ordinarily California courts limit and interpret “completion” to mean “substantial completion,” not absolute and final completion of every contractual detail.


‘Substantial Completion’ vs. ‘Substantial Performance’


Unfortunately, when it comes to


trying to state a general guide to inter- pretation, California case law provides few or no universal principles about what constitutes substantial completion. Rather, “substantial completion” seems to depend upon the unique facts of each case. Hence, California public entities and contractors risk that California judges and juries will second-guess their judgments about when substantial completion was reached on a project. We attorneys for contractors


often argue that the legal doctrine of “substantial performance” is akin to “substantial completion.” Te “substantial performance” doctrine


California Constructor


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