Best Practices Construction Law

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Matt has written articles and given presentations on all aspects of construction law. Find a resource here.

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Best Practices top posts include claims preparation, contract drafting, and litigation pitfalls. You don’t want to miss these ones.

Matthew DeVries

Matt is a construction & litigation attorney at Burr & Forman LLP and father of seven young kids.

How To Track Increased Construction Costs For Proving Claims

Posted in Best Practices, Claims, Claims and Disputes

I previously blogged about the importance of using daily reports to prove construction claims.

In addition to daily reports, the following records should be prepared and maintained in the normal course of business to help prove claims and effectively manage the project:

  • Correspondence file containing all correspondence relating to a specific claim, including letters and/or memoranda to and from the DOT and subcontractors.
  • Meeting minutes and internal memoranda concerning the claim should be maintained in order to document attempts to resolve matters with the DOT and its representatives.
  • Plans and specifications, including all amendments, details, clarifications, and options of the owner concerning the plans and specifications.
  • Change/work order file showing all changes or work orders requested with regard to the particular aspect of the work that is the subject of the claim.
  • Schedules, including the as-planned and updates.
  • Job photographs and videotapes, for both status of work in place and possibly evidence of the conditions leading up to the change.
  • Subcontractor and/or supplier files documenting all dealings between the contractor and the subcontractor concerning the area of the claim.
  • Miscellaneous evidence file containing all other evidence that could help support the claim, such as inspection reports, completion schedules, projections, flow charts, work progress, accident reports, photographs, etc.
  • Job cost records, which will be critical to showing the additional costs incurred.

If a contractor expects to seek additional compensation for an encountered condition, it should create an additional job cost category describing the extra work. Once the new cost category is created, the supervisor responsible for completing the daily report should assign all additional labor and equipment hours to the newly created cost code. Where an unforeseen condition creates additional work not included in the original contract, recording labor and equipment hours is quite easy. On the other hand, when unforeseen conditions create no new work, but rather, take the form of impeding a crew’s progress, the recording task becomes more difficult.

Image: Tanzer18

Top 14 Most Common Scheduling Mistakes by Contractors

Posted in Claims and Disputes, Project Management, Scheduling

Many delay, disruption, and loss of productivity claims are lost or substantially reduced in value because mistakes, errors and carelessness are reflected in the original schedule and plan of operations. The original schedule is often the first piece of documentation that the owner receives demonstrating the contractor’s professionalism in planning and management.

Contractors should pay great attention to the scheduling process and avoid many of the common mistakes that can lead to a loss of credibility on the project. It is impossible to list all of the possible initial scheduling mistakes, but the following is a list of the Top 14 mistakes in the initial construction schedule that some courts and boards of contract appeals have noted:

  1. No proof of the information used to prepare schedule
  2. Errors in technical logic
  3. Incomplete schedules
  4. Overlooking procurement of critical materials
  5. Failure to consider physical restraints
  6. Failure to consider weather restraints
  7. Failure to consider resources
  8. Failure to consider the economics of the sequencing
  9. Failure to consider uncertainty and risk in establishing durations
  10. Schedule does not “tie in” to the anticipated means and methods and/or estimate
  11. Logic intentionally deviates from the manner in which the contractor intends to build
  12. Elimination of float by increasing durations
  13. Unrealistic productivity or durations
  14. The schedule submitted to the owner was not used to build the project

Again, the schedule can often set the tone for the job. In court, it is the document that establishes the benchmark of all time related claims. As such, it has a tremendous impact on the judge and jury and influences the credibility they will attach to the evidence that follows.

Eeeek! What To Do When You Find Bones or Human Remains On the Construction Site?

Posted in Best Practices, Claims and Disputes, Project Management

Last month, authorities in Suffolk, Virginia were investigating a construction site where human bones were found.  Forensic experts were called in to excavate the site and determine whether they were recent or from an old burial ground.  Has this ever happened at one of your sites?


If you find bones or other archaeological artifacts during excavation and construction, here are a few tips on what you should do:

  • Stop work.  Many contract documents, including the AIA 201 (2007), require the contractor to “immediately suspend” the operations upon the discovery of human remains or other archeological findings.  Even if your contract does not address this situation, you should stop work to properly analyze the situation.
  • Call others.  This includes the owner, the architect/engineer of record, and local police.  Check your state’s law to see whether you have an obligation to notify any other public authority, such as Tennessee Code section 11-6-107, which requires you to notify the coroner or medical examiner upon the discovery of human remains during construction.
  • Assess options.  Depending on your jurisdiction, you may be required to rebury the remains pursuant to a local statute.  For example, if you have excavated a cemetery or other historical burial site, you will be required to rebury the remains by using either a funeral home or an archeological group.
  • Preserve claims.  As always, the parties’ contract should address risks such as “bones” found on the construction site.  Generally, the owner of the site is required to take action to continue the work and resolve the problem.  The contractor may be entitled to additional time and money for the impact of the discovery and remediation efforts.

In the situation above, forensic experts will continue to investigate to determine whether any crime was committed.  At the conclusion of the investigation, the property owner and contractors can continue their work.

LOL! OMG. HUH? Court Finds That Text Message Can Form Binding Contract

Posted in Best Practices, Case Law, Contract Docs, Legal Trends, Project Management

In the world of Twitter, Facebook and LinkedIn, it is no secret that individuals are communicating regularly on their smartphones about their business affairs. Recently, a court addressed the question about whether a text message can constitute a writing sufficient under the Statute of Frauds to create an enforceable contract.


In St. John’s Holdings, LLC v. Two Electronics, LLC, the Massachusetts’ Land Court concluded (in what appears to be a case of first impression) that a string of text messages can constitute a writing under the Statute of Frauds sufficient to bind the parties to sell certain property.

The transaction involved numerous discussions and emails, including four drafts of a letter of intent from Buyer to Seller for purchase of a piece of property.  None of the drafts of the letter were signed by Buyer.  Ultimately, Seller’s agent texted Buyer’s agent, asking him to sign the letter and provide a deposit.  About two hours later, after Buyer signed the letter and provided a deposit, Buyer’s agent sent the following text to Seller’s agent:

Tim, I have the signed LOI and check it is 424[pm] where can I meet you?

The two agents met later that day to deliver and accept the letter and deposit.  When the Buyer’s agent asked for a copy of the Seller’s executed documents, Seller’s agent sent the following text:

[Seller] was out of town today.  He will get back to us tomorrow.

Here’s the problem: the Seller accepted a third party’s offer to purchase the property at the same time, and refused to execute and deliver the letter of intent from the original Buyer.

The general rule in most states is that contracts for the sale of land are enforceable only if they are supported by writing that includes the essential terms and is signed by the party against whom whom enforcement is sought.   This is called the Statute of Frauds.  Thus, the questions in St. John’s Holdings were: (a) whether a text message can be a writing under the Statute of Frauds; (b) whether the alleged writing contains sufficiently complete terms and an intention to be bound by those terms; (c) whether the text message is signed; and (d) whether there is an offer and acceptance.

The court concluded that the text message from Seller’s agent was a writing that, read in the context of the email exchanges between the parties, contained sufficient terms to state a binding contract between Seller and Buyer.  In addition, the court found that the final text message contained a valid electronic signature to be “signed” within the meaning of the law.

Although this case deals with the purchase of real property, which is subject to the Statute of Frauds, there are many lessons for the modern construction project.

First, we live in a mobile, technology-driven environment.  Even the judge’s opinion reads like a primer on technology: “E-mails facilitate rapid, almost instantaneous communication, but in many cases they analogize more closely to telephone calls, or at least to voice mail messages, shot back and forth between parties whose chief goal is prompt response….”  The judge also noted that “e-mails reveal that the parties are really just ‘talking’ with the help of the internet, and not sitting down across a virtual table to electronically ‘write up’ a memorandum of any contractual significance.”

Second, claims succeed or fail based upon the documentation.  Whether you are talking about the formation of a contract, the validity of a change order, or the supporting evidence for a delay claim, the documents are key to either winning or losing.  Your claim is a story, and it must be told based upon the contemporaneous records on the project.

Third, you must harness digital data. More and more litigation and arbitration involve discovery of texts, emails and photographs for proving or defending a claim.  You should have a written policy that addresses the use of cell phones and tablets with an eye for document preservation.  Are change orders being discussed by text?  What about photos of an accident?  And did you think about use of personal email accounts by your project members?  All of these issues need to be addressed.


Subcontractor’s Failure to Strictly Comply With Notice Provision Costs $200,000

Posted in Best Practices, Case Law, Claims and Disputes, Legal Trends, Tennessee

Whether you are an owner, contractor, subcontractor or supplier, you will want to read the rest of this post since it illustrates precisely what all those attorneys have been telling you for years: “Please, please, please read your contract.” In this instance, one party’s failure to strictly follow the contractual notice provision was a $209,235.36 mistake.


In Schindler v. Tully Construction Co., 139 A.D.3d 930 (May 18, 2016), the New York Supreme Court, Appellate Division, reversed a trial court’s award of delay damages in favor of a subcontractor on a public contract.  The general contractor entered into an agreement with the City of New York Department of Sanitation to construct a garage. The subcontractor agreed to to furnish and install five elevators for the project. Although the court’s decision does not elaborate on the details, the subcontractor filed suit and was awarded more than $200,000 in damages incurred as a result of delays in performance of the work.

The prime contract between the City and the general contractor, which was incorporated into the subcontract by reference, contained a strict notice provision:

. . . within forty-five (45) Days from the time such damages are first incurred, and every thirty (30) Days thereafter for as long as such damages are incurred, verified statements of the details and amounts of such damages, together with documentary evidence of such damages.

. . . [a failure] to strictly comply with the requirements of Article … 11.1.2 shall be deemed a conclusive waiver by the Contractor of any and all claims for damages for delay arising from such condition.

While the words “condition-precedent” do not appear to be expressly stated in the contract, the court found that the contract contained “a condition-precedent type notice provision.”  The appellate court held that the letters and emails relied upon by the trial court “did not strictly comply with the contractual notice requirement, since they did not contain verified statements of the amount of delay damages allegedly sustained by the plaintiff and were unsupported by documentary evidence.”  The appellate court also found that actual knowledge of the delays and claims did not excuse the subcontractor from complying with the the notice requirements of the contract. Accordingly, the appellate court reversed the award of damages in favor of the subcontractor and held that the subcontractor’s complaint should be dismissed.

Do you think the court in Schindler reached the right conclusion?  Like every legal question, the answer is: It depends!  Depending on the law in your state, “strict compliance” and “substantial compliance” compel different results.  For example, in Lee Masonry, Inc. v. City of Franklin, the Court of Appeals of Tennessee held that an owner’s actual knowledge of the events giving rise to the claims at issue did not bar recovery even though the contractors did not strictly comply with the notice requirements.  The appellate court also held that if the contractors did not fully comply with all of the notice provisions, such non-compliance would not be a material deviation from the contract requirements:

We agree with the trial court’s assessment that, based on meeting minutes, daily reports, revised schedules, and default letters to [the engineer], the City had actual knowledge of the delays and disruptions on the project and how they were impacting [the contractors]. As the trial court noted, “[a]ny further written notice would not have served any practical purpose.”

Strict or substantial compliance. When you are required to strictly comply with a particular provision or legal requirement, then any departure from that requirement (no matter how insubstantial) can void the claim or provide an absolute defense.  On the other hand, if only substantial compliance is required, then you need only meet the primary purpose or central aim of the contract or statute is met.  It is an equitable doctrine that if you act in good faith but fail to meet the exact requirements, the law treats the requirement as having been meet.

Your takeaways?  Read the notice provisions in your contract and check your state’s laws on the substantial compliance doctrine.  Read this post on providing notice and ten other tasks when pursuing a construction claim.  Don’t make a $200,000 mistake by failing to follow the contract and law.


Top 7 Factors Affecting Labor Productivity Losses On A Construction Project

Posted in Best Practices, Legal Trends, Project Management, Scheduling

Construction labor is always in the news. Last month, I wrote an article for the Nashville Business Journal challenging industry leaders on how to respond to the shortage of skilled labor in the area.  Recently, the U.S. Department of Labor issued new overtime regulations, which no doubt will affect your workforce.  When you deal with construction claims, many believe that the largest component of any request for additional compensation is generally labor costs.


In a recent Construction Briefings article by Kathleen Harmon, the author breaks down loss of productivity claims based upon a claim of acceleration to overcome excusable delays, or a claim for cumulative impact of an owner’s changes project.  In general, labor productivity refers to the measurement or unit of work that is accomplished for a designated period of time. A contractor generally bids a scope of work based upon certain assumptions regarding labor costs and labor productivity. A compensable loss in terms of labor productivity happens when the contractor uses more hours to complete a given unit of work than it would have used absent the intervening cause. According to Harmon, the top seven factors affecting labor productivity losses on a construction project include:

  1. Weather. Adverse weather is a significant cause of lost productivity on a construction project. The parties contract generally will address where he contractor is entitled to additional time for “unusually severe weather” and the type of proof that may be required for submitting a claim. The lost productivity may include those days when the contractor experiences adverse weather, but also when delays caused by the owner push the project schedule into weather conditions that impact performance.
  2. Out of sequence work.  The contractor may be entitled to seek additional compensation when its work is impacted by having to change its anticipated method of performance or sequence of work. When a contractor has to modify its work plan due to owner interferences or delays, it can experience lost productivity having to work around the unforeseeable event.
  3. Crowding and stacking of trades. Like out of sequence work, a contractor may be impacted by multiple trade contractors working in an area that was not otherwise anticipated. The crowding and stacking of trades can have a significant impact on labor productivity, and courts have recognized a loss of efficiency experienced by a mechanical subcontractor when the general contractor accelerated the work, causing overcrowding on the project, increased man-hours, and unavailability of materials.
  4. Overtime.  According to Harmon, fatigue and increased absenteeism due to scheduled overtime work can have an adverse impact on productivity. Again, the underlying cause must be compensable for these type of impacts are recoverable.
  5. Restricted site access.  Since the contractor is generally entitled to control its own means and methods of performance, restricted site access can also significantly affect labor productivity.  This may include actual access to the site as well as anticipated use of certain laydown areas.
  6. Unavailability of manpower.  Lack of skilled labor has a direct impact on the schedule, many times causing the contractor to accelerate its work to overcome the delays associated with maintaining a steady workforce.  Given the traditional contract language placing the risk of labor on the contractor, it is difficult to prove and recover additional compensation due to the unavailability of manpower.  But it remains a real problem in some areas.
  7. Cumulative impact.  Contractor may be able to cover for the combined impact of multiple changes on a project. This is sometimes called the “ripple effect” of having multiple changes on the project.

As a construction lawyer, I see the causes of lost productivity after the fact during the claims process or litigation.  As a contractor with the right project management team in place, you can see these causes before the fact.  Your job should be to identify the events and circumstances leading up to a loss of productivity. You should document both the cause and the impact in your daily reports and other key project documents. It will be very important to identify those causes of delay that are beyond the reasonable control as opposed to inefficiencies caused by the owner or other parties.

One Awesome Case Discussing The Difference Between Delay and Disruption Damages!

Posted in Case Law, Claims and Disputes, Legal Trends, Scheduling, Texas, Transportation

Rarely do you find a case that succinctly addresses a construction law issue.  Today, one of my legal alerts pointed me to one such case dealing with delay damages and disruption damages. This is a must read!

must read

In County of Galveston v. Triple B Services, LLP, decided on May 26, 2016, the Court of Appeals of Texas reviewed a contractor’s claim for damages on a road expansion project.  While the legal issue focused on the County’s right rely on the defense of sovereign immunity, the Contractor’s (and it expert’s) characterization of the damages was critical to the outcome of the case.  Since the applicable statute waives a county’s sovereign immunity for breach-of-contract damages that are “a direct result of owner-caused delays,” the Court had to decide whether disruption damages—as opposed to delay damages—were recoverable.

The Contract.  The County entered into an agreement with the Contractor to expand a three-mile stretch of road. Under the contract, the County was responsible for moving gas, water, and fiber-optic utilities.  According to the Contractor’s expert, the contract established a “baseline schedule … created by the County’s engineer,” which showed a starting date with unhindered access along the area of the road where the utilities were located. The contract allowed for “delay damages” if the Contractor’s request for those damages “is determined to be compensable.”

Owner-Related Delays.  Although the Contractor’s plans for the construction project anticipated that the County would move the utilities by a particular date, those utilities were moved almost one year later.  Nevertheless, the Contractor completed its work within the contract time.  According to the Contractor, it incurred additional costs to hand-form manholes, set and reset barricades, extended field office overhead, as well as additional labor, equipment, street cleaning, flagging, and traffic control—all of which resulted from the County’s delays in moving the utilities.

Sovereign Immunity Argument.  The County argued that Section 262.007 of the Local Government Code waives a county’s sovereign immunity for construction contracts involving claims for delay damages.  Here, the County relied heavily on the testimony of the Contractor’s expert witness who testified about the Contractor’s damages resulting from the County’s delays. Since the County did not timely move the utilities as anticipated in the original construction plan, that schedule of work was “disrupted.”  By seeking disruption damages, the County argued, the Contractor sought damages that were excluded from recovery under the statute.

So, are these delay damages or disruption damages?

On appeal, the Contractor agreed that its “disruption damages” do not meet the definition of “delay damages” as traditionally understood in the construction law arena. However, it argued that the statutory waiver of sovereign immunity for damages that are “a direct result of owner-caused delays or acceleration” includes more than “delay damages” as defined under construction law: “Disruption and lost productivity costs are … recoverable damages under the clear meaning of the words of the statute.”

The Court turned to the construction law bible written by Phillip Bruner and Patrick O’Connor to address the inquiry, noting that delay damages have a technical definition distinct from disruption damages:

 Delay damages refer to damages “arising out of delayed completion, suspension, acceleration or disrupted performance”; these damages compensate the contracting party that is injured when a project takes longer than the construction contract specified. . . .

Disruption damages, on the other hand, are for a project that may be timely completed but nevertheless includes disruption to the contractor and compensates it for “a reduction in the expected productivity of labor and equipment—a loss of efficiency measured in reduced production of units of work within a given period of time.” . . . Disruption damages can also be caused by an “event [that] both disrupts and delays a critical path activity….” A project that finishes on time but at greater expense because of disruptive events or scheduling errors presents a claim for disruption damages.

The Court’s Decision.  Based upon a plain reading of the statute, the Court concluded that Section 262.007 allows a claim for disruption damages against a county “if the disruption damages directly result from the county’s delay in performance of its contractual obligations….” Significantly, the statute did not distinguish between “delay damages” and “disruption damages” that are directly caused by the breaching party’s delay.

Lesson Learned.   According to the expert in this case, the Contractor incurred significant increased costs to finish the work on time. The Court’s opinion provides an excellent roadmap of the type of expert proof required to establish the damages sought by the Contractor, including the following:

  • The expert examined the “daily summaries” of work and “the manner [the project] was intended to be executed … [and] the manner by which the project was actually executed and some of the specific things that caused that deviation.”
  • Using this information, the expert testified that the Contractor had to adjust its approach to accommodate the County’s delay by “segmenting the work into smaller segments of the roadway, waiting on the utilities … just a various sundry of impacts that caused them to not be as productive from a direct labor standpoint.”
  • The “waiting on the utilities” caused the Contractor to waste “man-hours trying to deal with working around utilities and bouncing around back and forth and dealing with not being able to set barricades and … progress the roadway [in the way] that they thought they would be able to in an unhindered manner.”
  • The expert also testified that the Contractor had to add “a number of crews because they were working in so many different areas to try and progress the work….”
  • Finally, the expert opined that the Contractor’s clean-up crew also had to perform additional work because “whenever you slow down that progression and create situations where you’re excavating and you’re staging materials in one location[,] … you wind up with … more debris than if you were just moving in a steady progressive manner.”

Although the project in this case was finished on time and the Contractor never completely “stopped” its work, the Court readily found that the Contractor was “hindered” because of the County’s actions.  Since the type of recoverable damages include those that are “a direct result of owner-caused delays,” the Contractor could recover its disruption damages.

Between A Rock and A Hard Place: How the Severin Doctrine May Relate to Your Statute of Limitations Period

Posted in Bid Protest, Case Law, Claims, Federal Construction, Legal Trends

I previously blogged about the rules relating to pass-through claims, where a prime contractor’s recovery from an owner for damages suffered by its subcontractor is limited in certain circumstances.  In the post, I talked about a “past-through-plus” claim based upon the Severin doctrine, which provides a prime contractor cannot sue an owner on behalf of one of its subcontractors to recover monies due to the subcontractor unless the prime contractor is itself liable to the subcontractor.  Those rules can have an important effect on the time limits of when you pursue a claim against the government, often putting yourself between a rock and a hard place.


In Kellogg Brown & Root Servs., Inc. v. Murphy, (May 18, 2016), the Federal Circuit recently held that, for purposes of the six-year limitations period of the Contract Disputes Act (CDA), a contractor’s claim did not accrue when a terminated subcontractor stopped its work.  Nor did the period begin to accrue when the prime contractor and subcontractor agreed to cooperate in preparing invoices to submit to the Army.  Instead, the Court held, the prime contractor’s claim accrued only once it had resolved subcontractor costs, allowing the prime contractor to request a sum certain from the government. While the facts of the case are complex, here’s the skinny:

  1. Army and KBR enter cost-plus fee contract construct dining facilities and to provide meal and related services for troops in Iraq;
  2. KBR subcontracts certain work to KCPC;
  3. KBR terminates for default KCPC, which disputes the termination;
  4. KCPC continued performance at the request of KBR until a replacement subcontractor could be found;
  5. KCPC files suit against KBR for certain costs, and following settlement, KBR pays a “settlement amount” of $17.4 million;
  6. the parties agree to cooperate on submitting to the Army the subcontractor’s claim for costs and profits relating to the master agreement and the termination;
  7. KCPC submits its certified claim to KBR, and KBR submits a claim to the Army, but refuses to certify it or comment on its validity;
  8. the Army refuses to consider the claim and instructs KBR to “settle a claim by sub with its sub, then bill the government”;
  9. KBR finally “sponsors” the claim, only to withdraw it a few years later, citing to the government that it is a “business dispute” between it and its subcontractor;
  10. KCPC later files suit against KBR for failing to pursue the subcontractor’s claim and for inexplicable withdrawing the claim;
  11. the parties settle the second lawsuit and KBR pays KCPC an additional $10.4 million;  and
  12. KBR submits a certified claim with the Army for $10.4 million.

The Army moved to dismiss KBR’s claim, arguing that the six-year statute of limitations under the CDA had run.  The Board of Contract Appeals granted the motion, finding that the claim had accrued either on September 12, 2003 when KCPC ended its work or, alternatively, on January 24, 2005 when KBR and KCPC agreed to cooperate and present the cost to the Army.

The Federal Circuit reversed, holding that KBR’s claim was not time barred.  The Court concluded that the claim did not accrue when KCPC ended its work on September 12, 203.  The Federal Acquisition Regulation (FAR) defines “accrual” as:

the date when all events, that fix the alleged liability of either the Government or the contractor and permit assertion of the claim, were known or should have been known. For liability to be fixed, some injury must have occurred. However, monetary damages need not have been incurred.

However, liability was not fixed as of the date KCPC ended its work, and a claim (or written demand) as that term is defined by the CDA had not yet come into existence as of that date.

The Court also rejected the Army’s argument that the Severin doctrine requires a finding that the claim accrued on the September 12, 203 date.  As you probably know, Severin v. United States held that “if plaintiffs had proved that they, in the performance of their contract with the Government[,] became liable to their subcontractor for the damages which the latter suffered, that liability, though not yet satisfied by payment, might well constitute actual damages to plaintiffs, and sustain their suit.”

Just as in Severin, the Army argued that KBR became liable to its KCPC for the subcontractor’s damages due to KBR’s termination decision, and KBR’s claim accrued when KCPC’s claim accrued.  The Federal Circuit disagreed: “Severin does not so hold.”  Under the FAR, accrual does not occur until the contractor requests, or reasonably could have requested, a sum certain from the government.  In other words,  Contract Disputes Act does not require a general contractor to file “protective claims” while it resolves claims with a subcontractor.

In the end, KBR v. Murphy provides a good overview of the intricacies of pass-through claims and applicable statute of limitation periods.  Given the amount of money involved (settling for almost $30 million), it was certainly reasonable for the back-and-forth litigation between the prime contractor and subcontractor.  But how those discussions resolved themselves at each stage of the dispute had an effect on the way the government treated the claim.  It is important to understand when a claim is ripe, how the claim must be presented to the government, and whether it is properly asserted.

Who Assumes the Risk of Material Cost Increases? As Always, It Depends!

Posted in Best Practices, Claims, Federal Construction

When a client asks me about a particular contract provision and why it is “unfair” or “uneven”, we began a discussion about risk allocation. You see, the contract is used to shift the various risks on the project to the party most appropriate to handle it.  In other words, you are negotiating about who takes the risk on a particular issue.  For instance, the risk of performance is traditionally placed on the contractor, while the risk of payment is traditionally placed on the owner. That is why subcontractors feel that a “pay if paid” clause is unfair because it places the risk of payment entirely on the subcontractor who cannot control the payment process. What about the risk of escalation in material costs?


The United States Court of Appeals for the Federal Circuit Contract recently addressed this issue in a government contract dispute where the parties’ agreement required the contractor to pay for fuel at the prevailing rate.  According to the court, this put the risk of rate increases on the contractor.

The Case. In DG21, LLC v. Mabus (pdf), the Navy solicited proposals for a firm-fixed-price contract to provide support services for a Navy facility in the Indian Ocean. The contractor was also required to implement a fuel conservation program, there being two types of fuel: (1) Government-furnished fuel that was provided to the contractor by the Navy without charge; and (2) contractor-furnished fuel that was also provided by the Navy, but the contractor was required to pay for that fuel “at the prevailing [Department of Defense] rate.”  The solicitation also provided historical fuel prices and usage rates for contractors to use in crafting their bids.

The Back-and-Forth. When the contractor submitted its proposal, it said that it would submit a request for an equitable adjustment if the fuel rates varied by more than 10% from the historical rates.  The Navy responded that the historical fuel consumption and rates were “provided for informational purposes only.” The Navy also said that the solicitation was firm-fixed-price and that the contractor assumed the full risk of consumption and/or rate changes.  Notably, the Navy also questioned the contractor’s decision not to include an escalation clause in its proposal.

The contractor did not change its estimate of fuel costs, and the Navy ultimately awarded the contract to the contractor.  During performance, fuel prices doubled!  Ultimately, the contractor requested an equitable adjustment of $1.17 million, which reflected the amount it spent on fuel above the pre-contract average price of $1.75 per gallon.  The contracting officer denied the request and the board of contract appeals affirmed.

The Decision. On appeal, the Federal Circuit concluded that the contractor was not entitled to an equitable adjustment based upon fuel cost increases.  The general rule under a firm-fixed-price contract is that contractor assumes the risk of unexpected costs.  Likewise, the “prevailing DOD rate” provision in this contract allocated the risk of fluctuating fuel prices to the contractor.  The contractor could have bargained for protection from price increases by including a price escalation clause in its proposal…but it did not. Accordingly, the Federal Circuit held, the contractor assumed the full risk of consumption and rate changes.

So what?  The decision in Mabus provides a few lessons.  First, contractors who regularly do business with the government should be aware of the world of public procurement decisions.  There are literally hundreds of thousands of claims filed against federal agencies every year, and many of those cases make it through agency and court system.  It is very likely that your current problem has been addressed before and you will find some guidance on the issue.

Second, your proposal is where you address contingencies, exclusions and other areas of concern.  For the contractor in Mabus, fuel cost increase was raised by the contractor in its proposal, and the government responded accordingly.  As a business decision, the contractor chose to remove certain language from its proposal that may have allowed it to file a request for equitable adjustment at a later date.  In addition, the contractor could have included an escalation provision in its property, but it did not.

Finally, the Mabus decision reminds contractors that the parties’ written agreement is about risk allocation.  If you take more risk, then your price should increase.  If you have more reliability in the final cost of performance, then your fee should reflect the lower risk.  But make sure you are reading the general conditions of a proposed contract and assessing the risks involved before you submit your final bid.

Public Owner Recovers Liquidated Damages Even After Terminating Contractor for Convenience

Posted in Case Law, Claims and Disputes, Legal Trends

You can’t have your cake and eat it too.  That’s no fun!  Why even get the cake if you are not allowed to eat it?  Recently, a court held that a public owner could have both a termination for convenience, as well as liquidated damages.


In Old Colony Construction, LLC v. Southington, 316 Conn. 202 (2015), the Connecticut Supreme Court concluded that a contractor was liable for liquidated damages for project delays after being terminated for convenience, even where the project owner was partially responsible for the delays.

Since the contract expressly provided that the town could terminate the contract without cause and without prejudice to any of its other rights or remedies, the court held that the town’s termination of the contractor for convenience did not preclude recovery of liquidated damages.  The modern legal trend favors apportionment of liquidated damages where there is owner-caused delay, in particular where the liquidated damages clause provides a mechanism to extend the contract completion date, thereby reducing potential liquidated damages for delays not attributable to the contractor.

There is a lot more to this story, and you should read the court’s opinion for a lengthy discussion about waiver of liquidated damage provisions, entitlement to equitable adjustments, and remedies available with a termination for convenience.  However, if you are a contractor that regularly works with public owners, you should make sure to do the following:

  1. Read your contract.  While public owners rarely allow for any type of negotiation, you are well advised to read your contract in its entirety before you submit a bid, as you begin construction, throughout performance, and as soon as dispute arise.
  2. Document your claims.  One of the reasons the contractor failed on its claim for additional time was the lack of contractually required notice.  If you don’t follow the written notice requirements, you will likely lose on those claims.
  3. Expect the unexpected.  While the result in Old Colony may seem like a double recovery, it appears fully consistent with the law in Connecticut that allows pursuit of numerous remedies in the event of a default.  Again, the contract expressly stated that a termination for convenience would not affect the town’s other rights.