Liquidated Damages in Public Contracts

In Boone Coleman Constr., Inc. v. Piketon, , Slip Opinion No. 2016-Ohio-628. In Boone Coleman Constr., Inc. v. Piketon, 2016-Ohio-628, the Ohio Supreme Court reversed the Court of Appeals decision that refused to enforce a liquidated damages clause in a public contract. The contractor finished its contract more than a year late and was assessed $700 per day liquidated damages. The liquidated damages amount exceeded the amount of the contract. The Court of Appeals had found that the liquidated damages amounted to a penalty. Reversing the Court of Appeals, the Supreme Court said the relevant consideration is whether the daily amount of the liquidated damages was reasonable, not the total amount of the damages assessed. In this case, the daily amount of liquidated damages conformed to Ohio Department Transportation guidelines and was upheld as appropriate damages and not a penalty.
Pertinent quotes:
{ 16} Ohio has long recognized liquidated-damages provisions as valid and enforceable, see Samson Sales, 12 Ohio St.3d at 28, 465 N.E.2d 392, citing Jones v. Stevens , 112 Ohio St. 43, 146 N.E. 894 (1925); Lange v. Werke , 2 Ohio St. 519 (1853), as long as the provisions are not ones for penalties, Samson Sales, id . And therein lies the rub. "The difficult problem, in each case, is to determine whether or not the stipulated sum is an unenforceable penalty or an enforceable provision for liquidated damages." Dave Gustafson & Co., 83 S.D. at 165, 156 N.W.2d 185.
{ 22} We recognize that liquidated- damages provisions in public-construction projects play an important civic purpose in that they help foster timely completion of the project, thereby avoiding the loss of billions of taxpayers' dollars caused by contractors' delays. See, e.g., Scott M. Tyler, No (Easy) Way Out: "Liquidating" Stipulated Damages for Contractor Delay in Public Construction Contracts, 44 Duke L.J. 357, 358-359 (1994); Christian, Public Entities in Nevada Beware, 12-OCT Nevada Lawyer 16. We are not alone in that recognition. The Supreme Court and many state and federal appellate courts also recognize that liquidated-damages provisions in public contracts are particularly valuable given the unique difficulty in calculating the damages associated with a public contractor's breach of its promise to timely complete a public-improvement project. See, e.g., Priebe & Sons, 332 U.S. at 411, 68 S.Ct. 123, 92 L.Ed. 32 (recognizing that liquidated-damages provisions "serve a particularly useful function when damages are uncertain in nature or amount or are unmeasurable, as is the case in many government contracts"); Hovas Constr., Inc. v. W. Line Consol. School Dist. Bd. of Trustees, 111 So.3d 663, 666-667 (Miss.App.2013); Carrothers Constr. Co. , 288 Kan. at 756, 207 P.3d 231 (the unique difficulty of calculating damages when a contractor breaches a public-works contract "should be an important consideration in such cases and weigh favorably in finding a liquidated damages provision to be reasonable"); Fortune Bridge Co. v. Dept. of Transp., 242 Ga. 531, 533-534, 250 S.E.2d 401 (1978) (noting that "damages flowing from the contractor's failure to complete [public] roadway and bridges in a timely fashion are, as a practical matter, incapable of proof"); Brooks v. Wichita , 114 F. 297, 299 (8th Cir.1902) (recognizing that liquidated-damages provisions are the only way for a city to obtain adequate compensation for breach of a public contract; the damages sustained by the public in such cases are not capable of "judicial ascertainment" because they are "too remote, conjectural, and speculative" to prove); Dade Cty. Pub. Health Trust v. Romart Constr., Inc. , 577 So.2d 636, 638, 669 (Fla.App.1991) (fact that public entity may have suffered no monetary loss from breach does not render liquidated- damages provision unconscionable, because public project was intended for public use, not for profit).

On remand, the 4th District Court of Appeals upheld the imposition of the liquidated damages clause as written. Boone Coleman Constr., Inc. v. Piketon, , 2016-Ohio-1557.

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