Today, I have a story that will blow your mind!
What if I told you that an Owner could be responsible for causing a schedule delay in a construction project and later collect liquidated damages against the contractor after causing the delay?
I’m sure you would say that was impossible, but that is exactly what happened in the UK this past July.
In 2009 a UK based Developer (Cyden Homes) contracted a UK based contractor (North Midland Construction) to build what documents describe as a house and associated buildings.
The parties relied on the 2005 JCT Design and Build form of agreement as their standard form agreement. The contract was heavily modified to include several clauses including the following sentence.
…any delay…which is concurrent with another delay for which the Contractor is responsible shall not be taken into account…
This little addition in the agreement had the effect of eliminating all of the Contractor’s rights to for making claims of concurrent delays.
Concurrent delays refers to any two or more events that cause a delay to a construction schedule. The principle of concurrent delays typically comes into play when one delay event is caused by one party and another delay event is caused by the other party. The best comparison I have heard to explain concurrent delay is that concurrent delays are like offsetting penalties in a football game. The net effect is that neither party can benefit because both caused the delay.
Typically when you have concurrent delays, the parties simply declare the original completion date no longer valid and they set a new date. Both parties assume some level of responsibility for the delay and no one is held liable.
In the case of North Midland Building Ltd v Cyden Homes Ltd , the introduction of that single sentence took away North Midland’s ability to claim concurrent delays.
In addition to this clause North Midland agreed to pay Liquidated Damages at a rate of £5000 per week for delayed completion.
North Midland missed the completion date and Cyden Homes enforced their contract. The total sum of the Liquidated Damages was not reported.
This case is such a big deal that almost every construction law blogger in the world seems to have published an article about it.
The principles of this case are highly complex. The simple fact is that the court has maintained that when it comes to concurrent delays, there are no principles of law that will override contract language. This means that one savvy attorney can introduce language such as the one here and assign the risk of delays onto the other party. If the other party signs the contract, the terms are enforceable.
A secondary finding of the court was that the liquidated damages clause was upheld. From a previous article, you should know that courts will not enforce liquidated damages that are punitive. Cyden Home’s savvy attorney knew enough to craft a liquidated damages clause the courts found to be “a valid and genuine pre-estimate of loss caused by the delay, there being no suggestion of a penalty“.
I’m not going to regurgitate all of the legal basis and the court’s findings. You can check out Lexology and get the legal opinions. I will however share that this case demonstrates why you need a construction law attorney to review every contract every time. I’m sure when North Midland signed the contract, they had no idea that sentence would have such an impact on them.
So tell me, do you have a construction law attorney review each contract you sign? Have you ever signed an agreement where one sentence had such an impact? Did you benefit from that or were you victimized by it? Tell me your stories.
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