JUDICIAL JOTTINGS

 

By Joseph H. Kasimer

The Federal Court of Claims, in PCL Construction Services v. United States, 53 Fed. Cl. 479 (2002), considered the application of the two rules concerning the apportionment of liquidated damages for delay claims. Under the “rule against apportionment,” when performance of a contract is delayed by both parties, the original contract cannot be insisted upon, and liquidated damages provided under the contract are waived. Under the rule against apportionment, where delays are caused by both parties to the contract, the court will not attempt to apportion them, but will simply hold that the provisions of the contract with reference to liquidated damages will be annulled. 

Some courts have criticized the rule against apportionment as too harsh and have applied the “rule of clear apportionment.” Under the rule of clear apportionment, where delays are caused by both parties to a government contract, a court will apportion damages rather than annul a liquidated damages provision when there is a clear apportionment of the delay and expense attributable to each party.

After considering the application of both rules to the facts present in PLC Construction Services, the Court of Federal Claims determined that the government was not entitled to liquidated damages under either rule because the government had conceded that it was responsible for some portion of the delay in contract performance, but it was impossible to apportion damages based on the evidence submitted by the parties. 

In PCL Construction Services, the contractor had entered an agreement with the United States Bureau of Reclamation to construct a visitor center and parking structure at the Hoover Dam. The contractor filed a complaint to recover amounts retained by the government for liquidated damages. Although the court acknowledged that the applicable rule regarding the possible apportionment of liquidated damages was unsettled, the Court of Claims found the evidence presented insufficient to support the government’s retention of amounts for liquidated damages under either rule. The Court noted that neither party had submitted evidence of how the changes and delays affected other activities on the project, which would allow the Court to clearly apportion the delay. Although both parties had introduced expert reports which analyzed the general conditions which led to project delays and acknowledged delays caused by both parties, neither party presented sufficient evidence to apportion the delay. Therefore, even under the clear apportionment rule, the Court could not allocate the delay and apportion damages.

This case shows the importance of keeping close records of schedule delays and as built activities to prove claims for delays and liquidated damages.

In order to allow for compromise, parties may include a provision in the contract documents for materials substitutions. The normal substitution standard is for materials that are equal or better to the materials already identified as "acceptable." Contracts allowing for such substitutions enable a contractor, if necessary, to use his best judgment to complete the project without having to halt construction so that permission for the use of a different product can be obtained. This makes more efficient use of the parties' resources, allowing the owner to be comfortable in the quality of the product to be produced and allowing the contractor a measure of freedom to do his job as he sees fit within the confines of the project's plans and specifications.