The Unwitting Waiver of Construction Contract Provisions
What may seem to be an iron clad construction contract provision, may not turn out to be that way in practice–it may depend on the performance of the parties to the contract. Construction project owners need to be aware that courts of law may interpret certain actions or inactions by an owner as constituting a waiver of owner-friendly contract provisions. For example, in the case of RDP Royal Palm Hotel, L.P. v. Clark Construction Group, Inc., 168 Fed. Appx. 348 (11th Cir. 2006), Royal Palm (the Owner) and Clark Construction Group (the Contractor) entered into a contract for Clark Construction to build a resort in Miami Beach, Florida. After construction began, significant delays ensued, and Clark Construction could not meet the contractually required substantial completion date. After Clark Construction obtained a temporary certificate of occupancy, Royal Palm sued Clark Construction, refused to pay Clark Construction for its completed work, and demanded liquidated damages. In turn, Clark Construction sued Royal Palm for non-payment, and alleged that Royal Palm was the cause of various delays to the project.
The trial court found in favor of Clark Construction because Royal Palm waived the original substantial completion date and the right to liquidated damages by:
- Accepting Clark Construction’s continued performance;
- Failing to establish a revised completion date, which amounted to a failure to reserve its right to enforce the liquidated damages provisions;
- Continuing to issue of change orders and directives for additional work on the project after the contractually required date for substantial completion.
Royal Palm appealed, and the 11th Circuit upheld the trial court’s decision and denied Royal Palm’s request for liquidated damages.
Practical Application and Recommendations to Construction Project Owners
Many project owners may find themselves occupying the same position as Royal Palm, and the RDP Royal Palm Hotel, L.P. v. Clark Construction Group, Inc. case makes clear that an owner’s issuance of change orders and directives, along with a failure to set a new substantial completion date, may be considered a waiver of certain contract provisions (e.g., “time is of the essence” and liquidated damages provisions).
Therefore, it is important for owners to understand how their actions (and inactions) may constitute waiver of owner-friendly provisions. Owners should formally notify a contractor of its failure to achieve a contract completion date or milestone, request an updated construction schedule, and reserve its right to impose liquidated damages. An owner should also attempt to refrain from issuing any change orders or directives near the Substantial Completion date, or at least do so once a revised Substantial Completion date has been established.
During the course of any major construction project, both the owner and contractor should secure proper legal representation to explain these potential pitfalls and help outline tighter guidelines to protect their respective interests and avoid courtroom litigation.