February 25, 2015
Federal Circuit Upholds Liquidated Damages + Contractual Notice Provisions
In K-Con Building Systems, Inc., v. United States, a case arising out of a Coast Guard project, the United States Court of Appeals for the Federal Circuit recently upheld the enforceability of two contractual clauses that are frequently contested in both state and federal venues: Liquidated damages and contractual notice provisions. While the Court’s result is wholly unsurprising as to either issue, it serves as a good reminder as to the importance of both.
The Court first made clear that a contractor faces an uphill battle challenging a liquidated damages assessment. The Court firmly rejected the argument by the contractor (K-Con) that the assessment of more than $100,000 in liquidated damages constituted an “impermissible penalty.” The Court noted that such assessments are enforceable if the stipulated LD amount was reasonable at the time of contract, even if the government made an error in calculating the daily LD rate (as alleged by K-Con).
The Court next upheld–on the basis of a contractual notice provision–the dismissal of the contractor’s claim for constructive change. K-Con was required under the contract to provide notice of its claim within 20 days of the event claimed to give rise to the change. K-Con apparently failed to provide any notice of its claims for two years, “well beyond the 20-day time limit imposed” by the contract, and was thus barred from asserting the claims.