A recent case out of Tennessee raised the question of whether claims for liquidated damages were subject to the contract’s claim procedure time limits. The Tennessee Court of Appeals held that the owner waived its claim for liquidated damages because it did not follow the claim procedure. I’m sure that came as a surprise to the owner.
In this case, the owner claimed it was entitled to $237,000 in liquidated damages because the project was not completed on time. The general contractor defended the claim asserting that the owner caused the delays and the owner failed to make a timely claim for liquidated damages as required by the contract. The first defense is typical, but that second defense, that the owner must timely claim liquidated damages, is novel.
The court analyzed the definition of a claim under the AIA contract and found that the owner’s demand for liquidated damages was just that, a claim. The contract definition of Claim included a demand or assertion by one of the parties seeking payment of money or adjustment of the contract sum.
Finding that the broad definition of claim encompassed the owner’s demand for liquidated damages, the court found that the contract required the owner to make its claim within 21 days of the event giving rise to the claim. Unfortunately for the owner, it did not initiate a claim or even provide the contractor with notice of its intent to seek liquidated damages, until nearly a year after substantial completion.
This case serves as yet another reminder that you must know the terms of your contract and abide by the claim procedure or suffer the consequences.