Construction Delays and Liquidated Damages
When a project isn’t finished
on time, justifiable delays in one phase may not excuse the
contractor from timely completion of the other phases.
For contractors and
property owners, a construction delay is a serious matter, especially when it
pushes overall project completion past the contracted deadline. A December 2009
Arizona Court of Appeals ruling, in
Richard E. Lambert, Ltd. v. City of Tucson, illustrates the importance
of finishing a project on time – and the consequences for failing to do so.
2003, Richard E. Lambert, Ltd. (“REL”) contracted with the City of Tucson to
make improvements to a neighborhood center. The project included improving a
gymnasium and adding irrigation and landscaping to the sports fields that
surround the center.
The contract required REL
to begin work by January 5, 2004, and to complete the project by February 3,
2005. It also provided that, if any part of the project was delayed, REL would
move forward with other parts of the project that were unaffected by the delay.
REL completed the project
on December 19, 2005 – 319 days after the agreed completion date. The City
assessed $500 per day in liquidated damages against REL and retained the final
$108,300 due on the project.
REL appealed to the City
Contract Officer, who upheld the assessment and retention. REL then appealed to
the Director of Procurement, resulting in an evidentiary hearing. At that
hearing, the administrative officer heard arguments regarding the causes of
REL’s delays and ultimately upheld the Contract Officer’s ruling.
REL filed a special
action in Pima County Superior Court, relying on a contract provision that
granted REL a time extension in the event of delays that were beyond REL’s
Both sides filed motions
for summary judgment. Without holding an evidentiary hearing, the Superior Court
judge ruled in REL’s favor, concluding that the Procurement Director’s factual
findings were arbitrary, capricious and unsupported by facts. The judge also
reduced the liquidated damages to $13,500 and awarded REL its attorney fees.
appealed the dismissal to the Arizona Court of Appeals, which ruled that the
judge erred in granting REL’s motion for summary judgment.
The Court’s ruling
contains two conclusions that are more valuable to lawyers and judges than to
First, with respect
to motions for summary judgment, the Court of Appeals reaffirmed that
summary judgment is appropriate if “no genuine issues of material disputed
facts remain, and the moving party is entitled to judgment as a matter of
law.” In this case, there were a number of disputed facts.
Second, the Court
noted that, in determining whether an administrative decision is arbitrary
or capricious, the Superior Court “may not weigh the evidence on which the
decision was based” [emphasis added]. Rather, the decision is not arbitrary
or capricious if it is supported by evidence. As for the quality of the
evidence, the trial court may not substitute its own judgment for that of
the administrative officer.
Delay in Completion
Of specific interest to contractors is the issue of construction delays. While
REL was required to complete the entire project by a certain date, the contract
also entitled REL to an extension if the project was delayed because of
“unforeseeable causes beyond [REL’s] control.” The Court noted that REL, in
justifying the delay, bore the burden of proof on two issues:
that the delay was
that the excusable
event caused a delay to the overall completion of the contract.
The latter burden was
consistent with the contract’s requirement that, if one portion of the project
was delayed, REL was to continue work on other portions. The Court noted that
“an interruption in one phase of the work … does not always result in an
increase in the time necessary for total performance” or overall completion.
The City of Tucson
conceded that three significant events beyond REL’s control contributed to the
delays in completing certain phases of the project. However, the City argued –
and had substantial evidence – that the overall completion of the work had been
delayed not by these events but rather by inadequate staffing, poor supervision
and other causes that were within REL’s control. In addition, one of the
delaying events – an arson fire in the gymnasium – occurred more than a month
after REL’s completion deadline, when REL was already six months behind
schedule, and should not have impeded REL’s progress in the other phases of the
project (e.g., playground construction, extensive concrete and stucco work,
The Court determined that
REL’s failure to “progress onward” with the remainder of the project constituted
substantial evidence for a reasonable Procurement Director to conclude that the
arson fire “had no impact on [REL’s] ability to complete building and site work
that was incomplete on the date of the fire.” The Court found that other
significant events that excused delays in certain phases of the project
similarly failed to excuse REL’s delays in phases unaffected by those events.
In the end, the Court
ruled that, the Procurement Director’s findings against REL were based in fact
and were not arbitrary or capricious. The Court vacated the Superior Court’s
grant of summary judgment and sent the case back to Superior Court.
For contractors, the lessons in
REL v. City of Tucson are clear. First,
finish your jobs on time. Second, don’t think that justifiable delays in one
phase of a project are going to excuse you from timely completion of the other