Construction contracts often contain liquidated damage provisions, requiring a contractor to pay a set amount for each day the project is delayed. But, as the Nebraska Supreme Court recently ruled, in U.S. Pipeline v Northern Natural Gas, an owner can waive liquidated damages where its actions induce the belief that the owner intended to waive liquidated damages.
In this case, the parties agreed that the work would be done in approximately 55 days. For every day delayed, the contractor would be charged $11,700, up to a maximum of $351,000, or 30 days of liquidated damages.
During construction, the owner submitted a few design and path changes. Interestingly, at least two major design changes were submitted after the original completion date. The contractor submitted change orders estimating the anticipated cost to complete the extra work, but did not include a request for additional time.
At the end of the project, the owner assessed the maximum amount of liquidated damages and deducted this amount from the final payment.
U.S. Pipeline sued, claiming that the owner waived any claim for liquidated damages. The court agreed, finding that by requesting extra work that would clearly exceed the substantial completion date and by failing to inform U. S. Pipeline that it intended to enforce the liquidated damages provision, Northern Natural Gas waived its right to enforce the liquidated damages provision.
Take Away: Liquidated damage provisions are enforceable, but an owner must consistently act to support its intent to enforce such a provision. This means raising the issue of liquidated damages at every turn to make it clear that the owner intends to enforce the provision. Otherwise, an owner will be open to arguments that the claim was waived.