Time for Completion of the Construction Project

After agreeing on the price, a first issue relates to the time of completion of the project. First, the parties should set a date as to when construction should be completed. In addition to the completion date, the parties should aggress on and address how delays that inevitably arise will be handled. Everyone wants an early completion time and delays in the completion can cost money to all involved. The parties should decide how delays that arise from bad weather, changes in the work, labor strikes, changes in the plans, and unforeseen conditions will be addressed. Issues to consider are whether the construction contract will allow for an extension of completion time and whether the delay will provide for additional compensation to the contractor.

Parties sometimes will limit the amount of damages that can be levied against them in an action for delay. “Given [the harsh effect of such a provision], courts will strictly construe[,] but generally enforce them absent delay (1) not contemplated by the parties under the provision, (2) amounting to an abandonment of the contract, (3) caused by bad faith, or (4) amounting to active interference.” E. C. Ernst, Inc. v. Manhattan Const. Co. of Texas, 551 F.2d 1026, 1029 (5th Cir. 1977) (applying Alabama law). In Ernst, the court upheld a contract provision that limited the subcontractor’s claim for delay damages against an owner to an extension of time for the subcontractor. Id.

Along this line, construction contracts typically contain provisions that seek to set an amount for damages related to certain types of breach; such provisions are called “liquidated damage” clauses or provisions. “Liquidated damage provisions in contracts are enforceable under Alabama law as long as the contractual stipulation is reasonable and the measure of damages at the time of the contract was conjectural and uncertain.” E. C. Ernst, Inc., 551 F.2d at 1038 (allowing liquidated damages per the contract and rejecting the argument that the owner could not recover liquidated damages since owner also was at some fault for delay); see also, Ray Sumlin Const. Co., Inc. v. City of Mobile, 519 So.2d 511 (Ala. 1988) (provision in building contract, that for each day’s delay in completion beyond fixed date, contractor would be liable in the sum of $3,051.61 on a total contract of $9,254,000, was not a penalty, but rather, was valid provision for liquidated damages); Alpine Const. Co. v. Water Works Bd. of City of Birmingham, 377 So.2d 954, 955 (Ala. 1979) (upholding liquidated damages provision of $100 per day). Therefore, Alabama courts will generally enforce liquidated damage provisions as long as (1) they are a reasonable measure of damages, and (2) at the time the contract was formed, potential damages were difficult to determine.