NDFD-2 Flashcards
Liquidated Damages Test
Liquidated damages clauses must pass a two part test: (1) the damages from a breach are incapable of being estimated or are difficult to estimate at the time of contracting, and (2) the amount of liquidated damages is a reasonable forecast of just compensation.
Actual Damages Suffered by Owner from Delays
- Lost profits. Generally an owner can recover lost net profits when the profits are: (1) within the parties’ contemplation at the time the contract was made; (2) the proximate result of defendant’s breach; and (3) proven with reasonable certainty.
- Loss of rents.
- Interest and increased financing.
- Holdover Costs.
- A/E Fees. The owner may have to pay its design professionals for extended construction administration services.
Possible Contractor Delay Damages
- Increased field overhead. The increased cost of maintaining employees at the project, general conditions, these costs include personnel, temporary facilities, insurance, utilities and other field office costs.
- Unabsorbed Home Office Overhead. At least a portion of them are allocated to be absorbed by each project.
- Mobilization. Mobilization and demobilization costs can be an element of delay damages when work has to be stopped or re-started.
- Equipment Costs. Equipment that is rendered unproductive or idle as a result of delays can be another element of delay damages.
- Labor and Materials. The cost for labor and materials may escalate during of the extended time on the project.
• Productivity. Oftentimes, when a job is delayed, a contractor is required to work out of sequence or with interruptions, thereby creating production inefficiencies.
Delay and interference can also cause an increase or decrease in manpower resulting in overtime and decreased productivity.
- Lost Profits. This refers to unrealized profit on the project in question.
- Lost Business. A contractor might also claim that delay on a project negatively impacted his ability to obtain additional work.
- Subcontractor/Supplier Claim. Subcontractors and suppliers impacted by delays may assert their own delay claims.
Delays must be excusable and compensaable
Examples of excusable and compensable delay typically include when an owner fails to provide access to the construction site; interferes with access to the construction site; demands excessive change orders; fails to provide specific plans or specifications; or fails to provide materials on the required date. A delay can also be excusable but non-compensable. Labor disputes, unusually severe weather, acts of God, fires, and floods are often treated as excusable but not compensable
B. No Conspicuousness Requirement
The Supreme Court of Texas held in Green Int’l v. Solis, 951 S.W.2d 384, 387 (Tex. 1997) that NDFD clauses, unlike indemnity and release clauses, do not need to be drafted to be conspicuous. The Supreme Court of Texas reasoned that a NDFD clause is substantively different than indemnity or release clauses, which generally shifts the risk of future damage resulting from tortious conduct causing injury to persons or property.
City of Houston v. R.F. Ball Constr. Co., 570 S.W.2d 75 (Tex. Civ. App.—Houston [14th Dist.] 1978, writ ref’d
The primary Texas case analyzing the NDFD common-law exception of whether the delay was within the scope of the NDFD clause. R.F. Ball Construction Company (“Ball”), a contractor, sued the City of Houston (the “City”) for delay damages resulting from several hundred change orders and nearly a thousand clarifications issued during construction of the Houston Intercontinental Airport. As a result, the project finished over two years after the originally agreed upon completion date. In order to recover delay damages, Ball relied upon the common-law exception of “delay not intended to be covered by the scope of NDFD clause.” Ball argued that the excessive number of changes and clarifications causing the delay was not foreseen by the parties at the time they entered into the contract. Therefore, Ball argued that the NDFD clause did not apply to economic damages resulting from that delay. Although Ball’s argument was successful at the trial Court, the Fourteenth Court of Appeals reversed. It rejected the argument that every time conduct causing delay falls outside the scope of contemplation at the time two parties enter into a contract the NDFD clause is inapplicable. Instead, it focused on construction of the clause i.e. what was the intent of the parties. The Fourteenth Court of Appeals found that NDFD clause in Ball’s contract covered unforeseen events.
The Fourteenth Court of Appeals did not eliminate the common-law exception; rather, it clarified that merely because a delay was unforeseen does not mean that the delay was not intended to be covered by the particular NDFD clause in that case.
“Bad Faith” Exception to NDFD
The two leading Texas cases applying the “bad faith” common-law exception to NDFD
clauses are Housing Authority of Dallas v. Hubbell, 325 S.W.2d 880 (Tex. Civ. App.—Dallas
1959, writ ref’d n.r.e) and United States ex rel. Wallace v. Flintco Inc., 143 F.3d 955 (5th Cir.
1998). In both cases, the respective Courts upheld the application of the “bad faith” exception
and sustained a delay damage award to the contractor notwithstanding the NDFD clause. As
used herein the term “bad faith” refers collectively to conduct which may also be described as
“arbitrary and capricious”, “willful misconduct”, “active interference”, and “fraud.”
Local Government Code § 271.152. Waiver of Immunity to Suit for Certain Claims
A local governmental entity that is authorized by statute or the constitution to enter into a contract and that enters into a contract subject to this subchapter waives sovereign immunity to suit for
the purpose of adjudicating a claim for breach of the contract, subject to the terms and conditions of this su
Local Government Code § 271.153. Limitations on Adjudication Awards
(a) The total amount of money awarded in an adjudication brought against a local governmental entity for breach of a contract subject to this subchapter is limited to th following:
(1) the balance due and owed by the local governmental entity under the contract as it may have been amended, including any amount owed as
compensation for the increased cost to perform
the work as a direct result of owner-caused delays or acceleration;
(2) the amount owed for change orders or additional
work the contractor is directed to perform by a local
governmental entity in connection with the contract;
(3) reasonable and necessary attorney’s fees that are
equitable and just; and
(4) interest as allowed by law, including interest as
calculated under Chapter 2251, Government Code.
Prohibited Damages under Local Gov. Code 271.153
Damages awarded in an adjudication brought against a local governmental entity arising under a contract subject to this subchapter may not include:
(1) consequential damages, except as expressly
allowed under Subsection (a)(1);
(2) exemplary damages; or
(3) damages for unabsorbed home office overhead.
Local Gov. Code 271.152 Waiver of Immunity
Sections 271.152 permit a party to bring a breach of contract suit against a local government entity. A local government entity waives its immunity as to breach of contract only and not to other causes of action like quantum meruit.
Texas Local Gov. Code Sec. 262.007 (Waiver of Immunity for Counties)
Texas Local Government Code Section 262.007 is a companion statute of Section 271.153 and applies specifically to Texas Counties.
Arguments in favor of NDFD provisions
Freedom to contract; contractors are sophisticated parties, risks can be priced in bid.
Arguments against NDFD provisions
Harsh results, strict construction, public policy.
Arbitrary and capricious
means willful and unreasoning action
without due consideration and in disregard of the facts, circumstances, and rights of other parties involved.
