Chapter 17 - § 17.12 • LIQUIDATED DAMAGES

• Jurisdiction: Colorado

§ 17.12 • LIQUIDATED DAMAGES

§ 17.12.1-Limitations upon the Recovery of Liquidated Damages

A good discussion of liquidated damage issues and, even more importantly, the need to allocate and assign responsibilities for delay comes from City of Westminster v. Centric-Jones Construction.⁷⁶ The project owner, City of Westminster (Westminster), sought to recover from Centric-Jones Construction (Jones) over problems that arose during the construction of a water treatment plant under various types of remedies and theories of recovery. After Jones completed the project, the underground, five-million-gallon clearwell leaked and caused destabilization of the underlying fill. To fix the clearwell, Westminster hired new engineers who made significant design changes that increased the ultimate cost of construction and time required for completion. The contract clause pertinent to this discussion provided that Jones would pay Westminster $1,000 per day past the scheduled completion date that the project was not operational. Westminster claimed Jones owed it $1,994,500 under the liquidated damages clause.

Westminster's liquidated damages claim failed for two reasons. First, the redesign went past correcting Jones's errors, and therefore contributed to the delay. Under Medema Homes, Inc. v. Lynn, a liquidated damages clause is not enforceable when the delay is due in whole or part to the party seeking to collect under the clause.⁷⁷ Second, Westminster did not divide the delay between optional redesign and necessary redesign. Therefore, the jury would have had to determine what portion of the delay resulted from Jones's errors and what part resulted from Westminster's additions to the project.⁷⁸

Because of courts' general hostility to a total cost approach to damages, it is fairly obvious that in seeking actual damages for overruns on a construction project, some attempt to apportion damages by the claimant is necessary. This necessity is less obvious in cases where liquidated damages are sought, but under City of Westminster, just as necessary.⁷⁹

§ 17.12.2-Possible Inapplicability of Medema Homes Exception

Medema Homes may be inapplicable in the event that the contractor fails to give written notice and request for time extensions for delays for which an owner is claimed by the contractor to be responsible.⁸⁰

The Medema Homes rule had its genesis in a 1914 decision, United States v. United Engineering & Construction Co.⁸¹ More recent cases disagree. Instead, they...