Many construction contracts require a contractor or subcontractor to continue to work during a pending dispute between an owner and a contractor or a contractor and subcontractor. One purpose of requiring continued performance is to ensure that good faith disputes will not prevent the timely completion of a project.

Will a continue-performance-during-disputes clause prevent a contractor from ever stopping work on a project? A recent federal court case illustrates that under some circumstances, a contractor may not be required to continue to build a project even if the contract prohibits the contractor from stopping work.

Continue Reading Is a Contractor Always Required to Continue to Work During Disputes?

I have written many posts about the enforceability of liquidated damages clauses in construction contracts—a topic that interests many people in the construction industry.

Occasionally, you may see an owner argue that under a liquidated damages provision, the owner has the option to either assess liquidated damages for the late completion of a project or obtain its actual damages associated with a delay.

Recently, a federal court considered whether a liquidated damages clause gave a public owner the right to assess liquidated damages or obtain actual damages.

Continue Reading Does an Owner Have a Choice Between Liquidated and Actual Damages for Late Completion of a Project?

When a contractor or subcontractor is terminated for default, the terminating party may seek its damages for completing the defaulted contractor or subcontractor’s scope of work. The cost to complete the work will almost always exceed whatever money was left in the contract to complete the work.

Construction contracts will often expressly allow the terminating party to obtain the above excess completion costs. And under Florida law, “controlling weight should be given to the actual expenditures, made in good faith, that are necessary to complete the job covered by the original contract.” R.K. Cooper Builders, Inc. v. Free-Lock Ceilings, Inc.

But what happens when the excess completion costs include the cost to construct a second building when only one building was contemplated under the parties’ contract?

Will those excess completion costs be considered a form of consequential damages that may be barred under the parties’ contract? A federal court recently considered that question in United States ex rel. Sustainable Modular Management, Inc. v. JE Dunn Construction Company.

Continue Reading Does a Consequential Damages Waiver Bar the Recovery of Completion Costs?

A performance bond ensures that the bonded contractor or subcontractor will complete its work on a project. If a bonded contractor or subcontractor defaults, the surety should step in and exercise one of its options under the bond, which typically includes arranging for the completion of the defaulted contractor’s work.

Often, before a surety’s obligation to complete the defaulted contractor’s work is triggered, the surety must be given written notice of the contractor’s default. This gives the surety the chance to choose one of its options under the bond.

If an owner or contractor fails to provide any required written notice before hiring a replacement contractor or subcontractor to complete the work, the surety may assert the lack of written notice as a defense to a performance bond claim.

But what happens when an owner or contractor fails to timely provide the required written notice of default and the surety, once it learns of the default, indicates that the owner or contractor’s decision to hire a replacement contractor or subcontractor is fine?

In that situation, it’s possible that the surety may have waived its right to timely written notice. A recent federal court case—VEC, Inc. v. Joyce Electrical, Inc.—recently addressed such a situation.

Continue Reading Can a Surety Waive Its Right to Notice Under a Performance Bond?

There are many important provisions to include in joint-venture agreements between contractors pursuing a project. (For a list of five important provisions to include in joint-venture agreements, click here.) One important thing to address in a joint-venture agreement is how capital contributions will be handled.

Here are questions to consider when drafting a capital call provision in a construction joint-venture agreement:

  1. Who will determine that additional capital is required for the joint venture to complete the work?
  2. Who has to agree with that determination? In joint ventures with more than two contractors, will it be a simple majority vote or will unanimous consent be required?
  3. If unanimous consent is required, will one of the joint venture partners—likely the majority partner—have the right to make a unilateral capital call when/if the majority partner decides that without the capital, the joint venture cannot successfully complete the project?
  4. How will disagreements regarding capital calls be handled? If unanimous consent is required for capital calls, how can the partner who believes that additional capital is needed to complete a project challenge the other partner’s refusal to contribute capital to the joint venture? If a partner may make a unilateral capital call, how may the other partner challenge that capital call as unreasonable?

The above questions are worth considering and expressly addressing in a construction joint-venture agreement. If language addressing the above questions is not included, there may be disputes between partners in a construction joint venture as to capital calls.

There have been at least a couple of significant, recent disputes regarding this issue. One of those disputes is currently being litigated in a federal court lawsuit between two contractors—Archer Western and The McDonnel Group.

Continue Reading How to Address Capital Calls in Construction Joint-Venture Agreements

Builder’s risk insurance is a type of property insurance that covers damage to a project under construction. A builder’s risk policy is a no-fault form of insurance—it doesn’t matter who is responsible for the loss, builder’s risk will typically cover the loss.

There are times where a contractor’s faulty workmanship may cause a loss to a project covered under builder’s risk insurance. That can raise the following question—does builder’s risk cover the costs to repair or replace defective work on a project?

Much like many construction insurance coverage questions, the answer depends on the language of the builder’s risk policy. Many times, a builder’s risk policy will have an exclusion for faulty workmanship.

But some builder’s risk policies also have an endorsement that expands coverage—the LEG 3 provision. The LEG 3 provision is a type of extra coverage that an insured can purchase. It adjusts the coverage available under a builder’s risk policy to include certain losses and damages associated with defective work. (LEG is the abbreviation for the London Engineering Group, which is an association of insurers providing a forum for discussion and education addressing insurance topics.)

In January 2024, a Florida federal court issued a lengthy opinion analyzing whether a builder’s risk policy with a LEG 3 provision covers the costs associated with replacing/repairing defective work.

Continue Reading Does Builder’s Risk Insurance Cover Costs to Repair or Replace Defective Work?

Are liquidated damages clauses in construction contracts enforceable? That’s a question that is often litigated in construction disputes.

It’s not surprising that some of the most popular articles on this blog address examples of courts refusing to enforce liquidated damages clauses in a construction contracts. For two examples of Florida courts finding liquidated damages clauses unenforceable, click here and click here.

Generally, liquidated damages provisions are enforceable. But there are circumstances where courts will refuse to enforce such a provision. Under Florida law, a liquidated damages clause will not be enforced if a court concludes it is a penalty clause. There is a two-part test for determining whether a liquidated damages clause will be stricken:

(1) the damages flowing from a breach of contract are not readily ascertainable; and

(2) the daily rate of liquidated damages is not grossly disproportionate to the damages that might be expected to flow from a breach.

While not a Florida case, a Georgia court recently considered whether a liquidated damages clause in a construction contract was enforceable.

Continue Reading Georgia Court Refuses to Enforce Liquidated Damages Clause

Constructive acceleration occurs when a project owner requires the contractor to comply with the original completion deadline, even though the contractor has encountered an excusable delay. (To read about the basics of acceleration claims, click here.)

Some courts have held that there are three “essential elements” of a constructive acceleration claim: (1) the contractor encountered an excusable delay, (2) the owner issued an acceleration order, and (3) the contractor incurred additional costs to accelerate its work.

Sometimes there are disputes about whether the owner or prime contractor issued an acceleration order.

Recently, a federal court considered whether a subcontractor adequately alleged a constructive acceleration claim against a prime contractor, which included a discussion of implied acceleration orders.

Continue Reading What Is Constructive Acceleration on a Construction Project?

The enforcement of liquidated damages provisions is a topic that gets a lot of attention in construction-contract disputes. Some of the most popular posts on this blog include examples of courts refusing to enforce liquidated damages provisions. (Click here for one example and click here for another example.)

One reason a court may refuse to enforce a liquidated damages provision is because the specified daily rate of liquidated damages is “grossly disproportionate” to the actual damages that are expected to be suffered due to the contractor not completing the project on time.

In addition, even if a liquidated damages clause is enforceable, it is possible that an owner can waive the right to claim liquidated damages. Under Florida law, to establish waiver, a party must show an intention to give up a known right. A waiver can be express or implied through conduct.

A federal court recently considered whether a project owner waived its right to seek liquidated damages as a matter of law.

Continue Reading Can a Project Owner Waive Its Right to Claim Liquidated Damages?

When a contractor bids a job, it does so based on a planned sequence of work and productivity of job labor. There are many issues that can arise while building a project that affect labor productivity, and many of those issues are not the contractor’s responsibility. The terms of the contract will often dictate whether a loss of productivity is compensable.

A contractor that suffers a loss of productivity may be entitled to additional compensation. Many methods have been used to calculate loss-of-productivity damages.

In JH Kelly, LLC v. AECOM Technical Services, Inc., a federal court recently considered several different methods for calculating a loss of productivity on a project.

Continue Reading Three Ways to Potentially Calculate Lost Productivity Damages