HawaiiConstructionLaw.com

Should Liquidated Damages Be Measured Against Actual Or Anticipated Damages? New Hawaii Fed. Case Says Both

In American Electric Co. LLC v. Parsons RCI, Inc., 2015 U.S. Dist. LEXIS
26087, the Hawaii U.S. Dist. Court was asked to rule on a summary judgment motion to eliminate a claim for liquidated damages in a construction project based upon the allegation that, in fact, the complaining party had suffered no damages and therefore, could not claim liquidated damages. 

In analyzing this argument, the court attempted to predict what Hawaii's appellate courts would say on this issue.  While it is not in dispute that under Hawaii law, liquidated damages must bear some relationship to a party's damages, the open question is which damages are to be measured -- actual damages, or anticipated damages?  In other words, if parties anticipate at the time of contracting that they will suffer great damages in the event of delayed completion, but end up suffering minimal or no damages, can they still make a liquidated damages claim? 

In the Parsons case, the contractor argued that in fact the complainant suffered no damages, because it was never itself assessed with any liquidated damages, and in fact received a bonus for completion of the job.  The complainant argued that at the time of contracting, both sides agreed and understood its damages would be great if performance was delayed, and that in fact it did receive a lesser bonus than it would have if the job was completed on time, plus it had to pay certain monies to remedy defective work in order to secure additional time for the contract and avoid its own liquidated damages liability. 

The court found under Hawaii law, it is clear that courts look to actual damages to measure against liquidated damages to determine if they are enforceable.  However, the court also found that Hawaii's courts have never stated that anticipated damages are not to be likewise used as a measure against liquidated damages and that certain cases cites by Hawaii's courts take just such an approach.  Thus, the court looked to both, ultimately finding issues of fact on both such approaches prevented a finding of summary judgment.

For drafting practitioners seeking enforcement of their liquidated damages clauses, this case emphasizes the importance of being able to demonstrate that the liquidated damages number used in the contract was actually discussed, negotiated, and agreed-upon, and not simply plucked from thin air and dropped into the agreement.   Conversely, from the Contractor's side, if you are anxious not to have to pay liquidated damages in the event no delay damages are incurred, you should definitely include such a provision in the contract's liquidated damages clause, i.e.,  "Notwithstanding the above, in no event shall any liquidated damages be sought or obtained in the event no actual damages are suffered."

Bid Protest Win: Public Job Bids Must Be Handed Over On Time or They Must Be Rejected

I recently litigated a bid protest seeking to overturn acceptance of a bid for a $7 million dollar paving job.  The time set for bid opening was 2:00.  On the date of bid opening, the low bidder ran into the room, self-stamped his bid, and handed it over to the public agency rep. behind the counter.  The bid was stamped on time, but was not received in the hands of the public agency until 1 minute after the bid deadline. 

We protested the low bid, taking the bid to the DCCA administrative hearing level.  The hearings officer ruled in our favor, finding that in order for a bid to be deemed "received" it had to be in the agency's possession and control, and if that happened after the bid deadline set forth in the invitation for bids, the bid was late. 

The hearing officer's decision is here:

Download MMB - Hearing Officer's Decision_120914

The low bidder and agency appealed their loss to the Second Circuit Court, where the original decision was upheld. 

It didn't end there, however.  The public agency still refused to award to the remaining low bidder, saying it was going to rebid the entire job rather than award to the low bidder.  We asked the Second Circuit to hold the public agency in contempt for refusing to comply with a pending court order, and on Tuesday, February 17 a notice of award letter was issued. 

Bids on public jobs often do come down to the last few minutes, due to subcontractor price changes or other variables, but it is pretty rare to see one that comes down to seconds.  Still, especially for the bidder who got his bid in on time, late is late, and the law is pretty unequivocal on the issue -- when a bid is turned in after the time identified in the invitation for bids, it will not be opened but returned to the bidder.  The big question in this protest is what "delivered" means -- does it mean self-stamping, especially a tacit practice that is not advertised as being allowed and is not used by the majority of bidders?  Or does it mean both stamping and delivery of the bid into the hands of the agency?  In this case, the hearings officer found it meant both -- which does make sense since if self-stamping alone could constitute "delivery," a bid could be deemed delivered even if it never reached the hands of the agency.  In any event, the case teaches bidders that they must have a failsafe plan for ensuring their bids get in on time. 

 

 

 

 

ICA Decision Doubles Down on Important Finding that a Contractor Assumes the Role of an Insurer If it Contracts to Defend and Indemnify

AIA contract language on indemnification typically requires contractors to hold harmless and indemnify against claims arising out of their performance of work.  Simply translated, this means if an owner is sued and ultimately it is determined that the contractor or its representatives or subcontractors were the source of the suit, the contractor must indemnify the owner for the damages it incurred as a result of being sued. 

 Painful litigation experiences have driven industry participants to routinely attempt to alter this clause to include a simple addition, that contractors must "defend," hold harmless and indemnify... and this simple addition has created a host of issues for unwitting contractees who sign off on this provision without accounting for the potential risk associated with it.  

Newest case in point:  Arthur v. State of Hawaii, et al., Nos. CAAP-13-0000531, 552, and 615 (Haw. Ct. App. February 27, 2015).  In this case, Hawaii's ICA was asked to revisit its Pancakes v. Pomare decision regarding private indemnity agreements, in which the ICA basically held that when a private contractee contracts to "defend" as part of an indemnity agreement, it takes on the role of an insurer who likewise contracts to defend insurers who are sued in civil actions. 

The Arthur case arose out of a wrongful death case in which a homeowner fell down a steep hillside and suffered a mortal head injury.  The homeowner's husband sued, claiming negligence against the State which originally owned the land, the developer who developed it, the designer who designed its improvements, the contractor who graded it, and finally the chain link fence subcontractor who, for $18,000, constructed a two foot high chain link fence at the base of the hill.  In their contracts, all of the parties had signed off on "defend and indemnify" provisions promising to defend against claims arising out of their contracts.  

At issue on appeal were various rulings at the Circuit Court level regarding the effect of these multiple indemnification and duty to defend clauses but for purposes of this post, the case boils down to three important findings.   

Pancakes Is Still The Law:  First, though specifically requested, the ICA refused to reconsider its decision in Pancakes vs. Pomare, which essentially held that when a private party contracts to defend and indemnify, it will be held to the same standards of "defense" as an insurer, meaning the duty will be determined by and enforceable upon, the allegations of the complaint, and not after trial and a determination of fault. This means that, like insurers, if there is even the possibility of a finding against the indemnitor based upon the allegations of the complaint, the indemnitor must defend against the entire complaint.  Industry consternation that private contracting parties are not the same as insurers, i.e. they do not have the capitalization, they are not likewise governed by statute, and most importantly that is not their business, apparently does not and will not sway the court from its original finding. 

Hawaii's Insurance Statute Prohibiting Indemnification for One's Own Negligence, Is Not Very Protective:  the designer in Arthur attempted to point out to the ICA that by putting indemnitors into the shoes of insurers, the court was violating HRS 431:10:222 , which provides that for construction projects, courts will not enforce indemnity agreements where one party claims indemnification for a party's sole negligence.  Focusing on the language "sole negligence," the ICA stated that the plaintiff's complaint did not allege "sole" negligence on the part of the contractor.  Therefore, the designer could not claim the indemnification clause was unenforceable under Hawaii law. 

The duty to defend is not a flow through duty unless specifically contracted to be one:   Despite finding that Pancakes is still governing law and that the duty to defend puts the indemnifier into the same shoes as an insurer who likewise contracts to defend, the ICA was unwilling to assign to the fencing subcontractor a flow through duty to the defend not just the entity with whom it contracted, but the develop and Architect as well, because of flow through provisions in the parties' contracts.  Because the Contractor contracted to defend and indemnify the Owner and because the Designers did likewise, they could not disclaim their responsibility to pay for a portion of the defense.