Liquidated Damages Liability After Convenience Termination
April 20th, 2015
A contractor and public authority struggled through much of a pump station replacement project. During the work, the town agreed to extend the completion date by five months. Many change orders were presented and agreed to. The extended completion date came and went, and the town considered terminating the contract for cause but did not do so. More than two years after the extended completion date, the town terminated the contract for convenience. It later sought to impose liquidated damages, to offset against the contractor’s claim for payment made after termination. The contractor’s defense: the town cannot impose liquidated damages after a termination for convenience. But the Connecticut Supreme Court has held that the town can impose liquidated damages in that situation. The contract included a “time of the essence” clause, and also provided for liquidated damages of $400/day for late completion. An essential element of this decision was the language in the termination for convenience clause, which allowed termination for the town’s convenience “without cause and without prejudice to any other right or remedy of [the town].” The Supreme Court noted that this reservation of rights “appears exceedingly broad.” The contractor argued that termination for convenience made unavailable any default-based remedy. But the court contrasted default-based remedies arising post-termination from such remedies existing at the time of termination. The town was entitled to more than two years’ worth of liquidated damages at the time of the convenience termination. The court noted: “When a contract expressly preserves remedies following termination, such a reservation must be given full effect absent evidence of a more limited intent.” So the right to liquidated damages existing at the time of termination could be imposed even with the convenience termination. As with many construction-related cases, the facts are far more involved than the summary above can relate, and there were other issues although none with as much import. Readers wanting more information should refer to the decision, in Old Colony Construction, LLC v. Town of Southington, 2015 Conn. LEXIS 94 (officially released Apr. 21, 2015).