Construction Legal Update

Overlapping delays partly caused by a contractor and partly by an owner — known as concurrent delays — typically nullify the assessment of liquidated damages in a breach of contract dispute. But a contractor generally will be held liable for liquidated damages if the contractor cannot establish proof of concurrent or owner-caused delays affecting the critical path. Where the parties' contract provides for the allocation of fault for delays, a trier of fact must analyze each delay day in order to apportion fault. In Lake Hills Investments, LLC v. Rushforth Construction Co., Inc., Division One of the Washington Court of Appeals clarified the rule for apportionment of liquidated damages, and held that factfinders can apportion delay days for liquidated damages between the contracting parties, where allowed by contract, depending on each party's respective fault for causing delays.

The court in Lake Hills examined a jury's assessment and apportionment of liquidated damages by the owner (Lake Hills) against the contractor (AP) for a project in Bellevue. The project was constructed in several phases. AP did not timely complete the project, with delays ranging from 300-500 days for multiple phases.

At trial, Lake Hills sought to assess liquidated damages of $2,500 per day for delays on each phase that were caused by the conduct of AP or its agents. The jury instruction at issue allowed the factfinder to excuse AP for any delays that AP, alone, did not cause. Although the law typically requires that a general contractor like AP carry the burden of proving such delays were the fault of concurrent or owner-caused delays, the jury instruction provided AP with a negative burden of proof focused on contractor-caused delays.

The court of appeals acknowledged that negative phrasing. Without addressing the issues related to each party's respective burden of proof, however, the court reasoned that the parties' contract allowed apportionment of delays. The court determined that liquidated damages could be assessed under the contract by "examining each day of delay, identifying the cause of delay, and adding or subtracting delay days based on the conduct of each party and its agents." The court adopted the modern rule of "a 'strong majority' of jurisdictions" that a factfinder can apportion liquidated damages between the contracting parties, where allowed by contract, depending on the relative allocation of fault in causing those delays.

The jury was instructed to excuse AP from any delay days "not solely caused by AP." But the court of appeals determined that instruction did not reflect the parties' contract. The court reasoned that "[t]he instruction let the jury excuse AP from any day of delay caused by anything other than itself, including its own agents." The jury instruction also did not account for any delays caused by AP's agents, subcontractors, material suppliers, consultants, etc., which normally constitute delays attributable to the general contractor. The trial court provided the narrower and negatively-phrased jury instruction, and the jury ultimately found "AP was not the 'sole' cause of 90 percent of the delay on the project."

The court of appeals held the instruction "misled the jury without misstating the law," but the court also determined that Lake Hills suffered no prejudice. Notwithstanding the appellate court's ruling on this issue, the case was ultimately reversed and remanded for a new trial on other grounds

The lesson from this case is that delay days may be apportioned to the contracting party found at fault for the cause of delay. That rule had not been clarified by the Washington appellate courts for nearly two decades. However, the decision in Lake Hills also should not change a contractor's burden of proof at trial. In order to overcome or nullify the assessment of liquidated damages during trial, a contractor must establish proof of either concurrent or owner-caused delays that affect the critical path. Delays that affect the critical path extend the overall length of construction. Only then, where the delays are attributable to such concurrent or owner-caused delays, a factfinder may apportion delay days to determine the proper assessment of liquidated damages. 

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