ASI began work on the painting project but missed the contractually required finish date with MDOT ultimately determining completion of the project on August 5, 2011. Accordingly, MDOT assessed LDs for 644 days worth of delay. During the course of construction, ASI contends that it and MDOT engaged in an ongoing dialogue that led it to believe, “MDOT would fairly and equitably address these issues at the end of the project.” ASI filed suit against MDOT claiming that LDs should not have been assessed in whole or in part because of MDOT’s own obstructionist actions and environmental conditions that were beyond ASI’s control.
At trial, ASI argued that 515 days were improperly assessed
due to 56 days of delay being the result of MDOT’s failure to approve work task
prerequisites in a timely manner, with a further 459 days of work being
excusable due to: 1) site conditions being “substantially worse” than could
have been anticipated; 2) additional stripe coating work outside of the
original contract scope; and 3) the impossibility of working in the winter (even
though winter work was allowed in the contract). ASI also argued in the alternative that LDs
should not be applied to the winter shutdown’s 362 days where MDOT could not
have experienced any losses, or that LDs should be void as an unenforceable
penalty for failing to be a good faith estimate of potential losses
incurred. The trial court ruled for MDOT
finding that the LDs were not an unenforceable penalty and that ASI had not
submitted a proper request for time extension in compliance with the contract
documents, thereby waiving any right to relief. ASI appealed the lower court’s ruling.
The Michigan Court of Appeals began its review with ASI’s
assertion that the LDs were an unenforceable penalty which would make any
assessment impermissible. In its argument, ASI pointed to a progress schedule
it attached to the contract that explicitly identifies a “winter shutdown” of
work activities. ASI contended that any calculation of LDs which included dates
when work was not schedule to be performed was not an honest attempt to
ascertain actual damages incurred. The
Court rejected ASI’s argument by pointing to the fact that MDOT’s damages were
not based upon if work was completed on a specific day during the course of the
project, but rather the impact of the total delay on MDOT’s organization. The
Court stated:
“The implied logic behind plaintiff’s
argument would suggest that if it had simply taken a day off work in the middle
of an ordinary week, defendants would have suffered some kind of harm
irrespective of the timeliness of the entire project. In fact, the opposite is
true: the liquidated damages clause reflects the parties’ agreement that
defendants would suffer harm if the project was incomplete after a certain
date, irrespective of how or why it was incomplete.”
The Court ruled that the LD’s provision was not a penalty
and was based upon MDOT’s administrative overhead for the project and concluded
LDs were “clearly based on the total delay.”
The Court next reviewed ASI’s claim that MDOT’s inability to
approve its scaffold plan in a timely manner caused a domino effect of other
delays that resulted in the project’s late delivery. The Court examined the term “delay” within
the contract and Standard Specification and whether it refers to a discrete impediment
to the work, or to the entire duration of the lateness of the project. The Court concluded that “delay” “refers to individual,
specific, discrete impediments to ongoing work.” The Court pointed to the fact that the
Standard Specification contemplates multiple delays occurring during the course
of project. The Court further muses that
the only reasonable reading of the Specification would be after every individual
and discreet occurrence of delay, the contractor would have 14 days after work
resumes to submit a delay claim or a time extension request. The Court found that ASI did not submit a credible
request for an extension of time in accordance with the Standard Specification’s
time frame and as a result waived its right to any extension of time or relief
to LDs.
The Court affirmed the lower court's rulings in full.
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The author, Brendan Carter, is a contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law. He is the Director of Industry Advancement & Labor Relations with the AGC of Massachusetts based in Wellesley, MA. He may be contacted at 781.786.8916 or carter@agcmass.org.
