Liquidated Damages Upheld Unless Extraordinarily Disproportionate

Originally posted on July 22, 2011

Weis Builders, Inc., 2010 ASBCA No. 56306, LEXIS 13 (Feb. 17, 2010).

The U.S. Army Corps of Engineers awarded Weis Builders, Inc. a design/build contract for family housing at Minot AFB in North Dakota valued at $350 million.  The liquidated damages provision of the contract and both disputed task orders stated that failure to complete the work on schedule would result in $2,400/day until the work was completed or accepted plus $35/day for each incomplete house.

Weis failed to complete both task orders on time, which resulted in a total $1.3 million in liquidated damages.  Weis argued that the provision was unenforceable because the government’s actual damages were less than $1.3 million and that the late turnover requirement was ambiguous. Both the contracting officer and the Armed Services Board of Appeals denied Weis’s claim.

Liquidated damages provisions will be upheld unless they are extraordinarily disproportionate to the actual damages suffered, thus penalizing the breaching party.  The difficulty lies in actually proving that the liquidated damages are extraordinarily disproportionate, especially in government contracts where it is hard to predict at the outset what damages the government will suffer if the contract is breached.

In this case, the liquidated damages were tied to reasonable estimates of the government’s predicted losses in the event that the construction was not completed on time.  $2,400/day was an adequate measure of the administrative costs and personnel costs that the government could have been expected to spend, and the $35/day was based on the need for housing military families in hotels until the construction was complete.  The Appeals Board also determined that the government need not prove the exact measure of calculation of liquidated damages so long as they were based on reasonable estimates.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice.  Seek a competent attorney for advice on any legal matter.

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