A general contractor’s subcontract with its subcontractor should include a provision that entitles it to flow down liquidated damages assessed by the owner stemming from delays caused by the subcontractor.  Such a provision does not mean the general contractor does not have to prove delays caused by the subcontractor or can arbitrarily allocate the amount or days it claims the subcontractor is liable.  The general contractor still will need to reasonably establish the delays the subcontractor caused the critical path of the schedule, i.e., delayed the job.   In addition to the right to flow down liquidated damages, the subcontract should also entitle the general contractor to recover its actual extended general conditions caused by the subcontractor’s delays (regardless of whether the owner assesses liquidated damages).  The objective is that if the subcontractor delays the job, the subcontractor is liable for liquidated damages the general contractor is liable to the owner for in addition to the general contractor’s own delay damages. This is an important subcontractual provision so that the risk of delay caused by subcontractors is clearly flowed down to them in the subcontract.

In a 1987 case, Hall Construction Co., Inc. v. Beynon, 507 So.2d 1225 (Fla. 5th DCA 1987), the subcontract at-issue contained language that stated, “The parties hereto agree that a supplier who delays performance beyond the time agreed upon in this Purchase Order shall have caused [general contractor] liquidated damages in the amount required of [general contractor] by their contract per day for each day such delay continues which sum the supplier hereby agrees to pay.”

The general contractor was liable to the owner for liquidated damages in the amount of $1,000/day and settled the liquidated damages assessment with the owner for the amount of $20,000 (which was a reduction from a $60,000+ exposure for 60+ days of delay).  The general contractor looked to apportion the liquidated damages to subcontractors it claimed was liable for the delay.  The subcontractor at-issue disputed its apportionment; therefore, the general contractor sought ALL of its delay damages caused by the subcontractor for the full amount of the 60+ day delay period.   The appellate court held that while the subcontract could be clearer, it was still unambiguous that the general contractor could ONLY recover liquidated damages because that is all that contract afforded:

Liquidated damages is a fictitious contractual amount which the parties agree will be paid for breach if damages are not readily ascertainable at the time the contract is drawn.  Although the [general contractor] maintains that it is entitled to liquidated damages as well as actual damages suffered as a result of the delay, we find that the parol evidence rule precludes such a finding.

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Had the general contractor been aware of the parol evidence rule, a different contract may have been provided.  For example, a contract with one paragraph for indemnification of all liquidated, or other, damages paid by the general to the owner and another paragraph for payment of other actual, consequential damages suffered by the general as a result of the delay caused by the sub.

Hall Construction Co., 507 So.2d at 1226-27.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

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