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HOW TO AVOID OR REDUCE LIQUIDATED DAMAGES WHEN A JOB TAKES LONGER THAN ORIGINALLY ANTICIPATED

Roofing contractors are frequently delayed by adverse weather conditions, delays caused

by their suppliers or subcontractors, changes to the scope of work and a host of other causes.

Besides merely putting a project behind schedule, such delays may have a serious financial effect

on a roofing contractor particularly if the contract provides for “liquidated damages.”

Because the financial effects suffered by an owner as a result of delays are often difficult

to quantify, many owners employ liquidated damages clauses instead. A liquidated damages

clause fixes a sum recoverable by the owner as damages for each day work extends beyond the

scheduled substantial completion date because of an unexcused contractor delay. Liquidated

damages serve as a substitute for any actual damages the owner might incur as a result of such a

delay. These clauses are typically enforced by courts on freedom of contract principles unless

the per-day sum is so exorbitant that, viewed from the time the contract was executed, it could

not bear any reasonable relation to the likely actual damages that would be suffered by the owner

in the event of a delay. This is a difficult standard to meet, and a roofing contractor should

generally assume damages will be assessed at the agreed-upon rate without regard to the actual

losses incurred by the owner.

ADDRESS SCHEDULE AND LIQUIDATED DAMAGES IN CONTRACTS

Although a roofing contractor may be unable to perform work because of conditions

beyond his or her control, roofing contractors sometimes unwittingly assume the risk of such

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conditions in contracts and may be held liable for liquidated damages. Most contracts drafted by

owners or prime contractors require a roofing contractor to complete the work by a certain date

without regard for the effects adverse weather may have on that date. Some contracts expressly

allow extensions only for “abnormal” weather conditions, which are conditions that are unusual

when compared with historical averages. These contracts may also include an agreement by the

roofing contractor to work Saturday and/or Sunday at no extra charge to make up for days lost to

weather during the week.

Examination of the contract for schedule and delay-related clauses before execution and

changing these clauses if necessary can save a roofing contractor from substantial liquidated

damages. Ideally, a roofing contractor should seek to define the contract time by the number of

work days (the number of days with conditions suitable to perform roofing work) or should

alternatively seek to modify the section addressing delays to provide that the roofing contractor

will be given an extension of time in the event it is delayed by adverse weather without any

requirement that such adverse weather be “abnormal.” Similarly, it is imperative that any

subcontractors and suppliers be contractually bound by the same liquidated damages clauses as

are applicable to the roofing contractor, so the roofing contractor can charge the appropriate

supplier or subcontractor for any liquidated damages assessed as a result of that party’s fault.

Many contracts drafted by prime contractors only contain a general statement to the

effect that if a prime contract contains a liquidated damages clause and such damages are

assessed against the prime contractor, the roofing contractor will be required to pay his or her

proportionate share of any such liquidated damages. For risk evaluation and management

purposes, a copy of the prime contract should be obtained and reviewed so any liquidated

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damages provisions are known at a project’s outset.

PROMPTLY PURSUE ALL CHANGE ORDERS AND COMPLY WITH NOTICE REQUIREMENTS

If it becomes necessary to perform additional work that requires an extension of time,

roofing contractors should read contracts before performing any change order work. Most

contracts provide specific instructions for what must be done in the event change order work

becomes necessary and identify specific steps that must be taken by a roofing contractor to

preserve his or her rights. The steps and notices a contract requires should be closely and strictly

followed. Typically, a roofing contractor must provide written notice within two to three days of

his or her knowledge of the events giving rise to the change order work. Any such provision

should be measured from the time the roofing contractor became aware of the event and not from

the event itself to reduce the possibility of losing a claim before the contractor even knew it

existed.

The contract may require this notice to include a description and estimation of the effect

on the schedule and the cost to the roofing contractor. In addition, most contracts provide that if

a roofing contractor performs additional work without a written change order and providing the

required written notice, the roofing contractor has waived his or her right to dispute the other

party’s decision or has conclusively agreed he or she is entitled to no additional time or

compensation. Similarly, most contracts identify other situations, such as delays caused by the

owner or other trades, discovery of hidden or unanticipated conditions, and discovery of

noncompliance of the drawings with local building codes, which require written notice from a

roofing contractor. Absent such a notice, a contract may provide that a roofing contractor

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forfeits any extension to which he or she may otherwise be entitled.

COMMUNICATE WITH THE OTHER PARTY

Regardless of the particular contract requirements , the best practice is for a roofing

contractor to provide written notice to the other party of the interpretation of the facts at the

earliest possible time, particularly when change orders are disputed or work is being delayed by

causes beyond the roofing contractor’s control. The actions a contractor takes at this time may

be scrutinized in the future, and it is important to have a written record of his or her position and

understanding. Moreover, sending written notice puts the onus on the other party to respond, and

their failure to do so in a timely manner may be construed as an implied acceptance or

acknowledgment of the contractor’s position. Any pertinent telephone conversations should be

summarized in an e-mail or letter to the other party confirming any oral agreement or

understanding.

If the other party disputes the contractor’s position, the contractor should continue to treat

the extra work as entitling him or her to a change order by sending a proposed change order in

the proper format to the other party and by referring to his or her entitlement to additional time in

any schedules or correspondence relating to schedule. A contractor should seek to negotiate

extensions at the earliest possible time. As the end of the job approaches and the other party is

holding retainage which is soon to become due, the other party’s negotiating leverage improves.

CONCLUSION

Delays are sometimes unavoidable in construction, and there will be times where a

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roofing contractor is appropriately charged liquidated damages. However, liquidated damages

may also be assessed if a roofing contractor is not wary of contract provisions or takes an overly

casual approach to compliance with notice requirements. The best way to protect against

excessive liquidated damages—aside from completing work within the contemplated schedule—

is to review and edit contract as necessary before signing and to carefully comply with the

contract. Contractors should review contracts to determine their rights and obligations and

strictly comply with any notice and timing requirements and the likelihood of exorbitant

liquidated damages will be substantially reduced.

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