Nearly all construction contracts contain deadlines for completion of the work, and contractors face either liquidated damages at an agreed-upon rate or delay damages in an amount the owner actually incurs if completion is untimely. Most contracts also contain provisions for the extension of time if delays are excusable and outside of the contractor’s control. As a recent Michigan case illustrates, a contractor’s failure to submit a proper time extension request will foreclose a claim at the conclusion of the project that liquidated damages are unwarranted.
Abhe & Svboda, Inc. v. State of Michigan Department of Transportation, 2017 WL 3722001 (Mich. App. Aug. 29, 2017), involved a contract to clean and paint a portion of a large suspension bridge. When the contractor completed the project late, the Michigan Department of Transportation (MDOT) assessed liquidated damages against the contractor at the contract-specified rate. In response, the contractor filed a claim seeking a waiver of all such damages due to dilatory behavior by the department and environmental circumstances beyond the contractor’s control. MDOT denied the claim and the contractor filed suit. On motion, the trial court dismissed the case because the contractor never filed a proper time extension request during the project. The contractor appealed.
During appeal, the contractor argued that when a party such as MDOT obstructs the other party from meeting a condition of a contract (i.e., a completion date), it waives its right to enforce that condition and thus cannot assess liquidated damages. In this regard, the contractor argued that 56 days of delay was attributed to the department’s failure to approve scaffolding submittals in a timely way, and 459 days of delay occurred due to unanticipated site conditions and work MDOT required outside the scope of the contract.
The Court of Appeals generally agreed with the contractor’s argument and the several previous court decisions the contractor cited as follows:
“ . . . in theory, if [MDOT] indeed contributed significantly to [the contractor’s] failure to complete the project timely, for example if [MDOT] unreasonably delayed [its] approval of [the contractor’s] scaffolding plan, that contribution would waive [MDOT’s] right to impose liquidated damages. Potentially, a “domino effect” could easily result from that delay and thus be at least partially responsible for the total delay.”
However, the court distinguished those cases and even pointed to language contained in one of them, which suggested that the situation might be different where the party imposing the liquidated damages had the power to extend the time for completion. To the court, the waiver rule the contractor cited was relevant (a) to cases where the power to extend time existed, but had not been properly exercised; and (b) to cases where no such power to extend existed at all. In contrast, the court noted, “if a contract permits an extension of time upon request, but no such request was made, [one of those court cases] implies that liquidated damages are not waived.”
Here, the court noted, “the contract provided a mechanism for [the contractor] to request deadline modifications based on weather-related or other delays. Logically, if [MDOT] can contractually extend the time for performance, then causing a delay is not synonymous with causing an obstruction to performance unless defendants have improperly failed to grant an appropriate such extension.”
At both the trial and appeals levels, the contractor claimed to have submitted two time extension requests. However, MDOT countered that both were untimely and neither contained the requisite requirements for a proper time extension request. The court found it unnecessary to address the latter contention because it determined that both were indeed untimely. It thus concluded that because the contract contained a time extension request provision and the contractor failed to submit such a request, the department did not waive any right it had to impose liquidated damages on account of the contractor’s failure to complete the project on time. In other words, in this circumstance, MDOT did not obstruct the contractor unless it both delayed progress and refused a proper time extension request.
Contractors often put off making time extension requests—because they believe they can work these out with the owner at the end of the project. Abhe & Svboda serves as a warning that these requests should be made promptly as delays occur.