Construction Law Today : Construction Lawyer & Attorney : Joshua Glazov : Design Build Contracts, Construction Bankruptcy

In the last post on consequential damages, Why Treat Consequential and Direct Damages Differently, we talked about why consequential damages are so much tougher to get.  In this post we'll talk about practical pointers and tips that you should keep in mind when you're dealing with consequential damages, especially when you're negotiating a contract.

Consequential Damages Are The Big Money

The biggest damages are usually consequential.  They're the "pain and suffering" of a breach of contract claim.  The owner's consequential damages for late completion of the Sands casino in the Perini case is the classic example.   Some examples of big consequential damages that litigants often ask for....

Owners asking for lost rents, lost sales, higher interest payments, extra loan fees, and  injury to the standing and reputation of the owner and the project.

Contractors asking for home office overhead, profits from work on other projects they had to turn away, lost bonding capacity, and injury to company standing and reputation.

Architects, engineers, and other design professionals asking for profits on work they had to turn away, extra expenses they incur devoting more professional time and resources to a project than expected, and injury to their professional standing and reputation.     

Because consequential damages involve big money, they usually arouse dogged and protracted disputes.  That's why early consequential damage planning is important.   

Proving Contemplation - Put It In Your Contract

From reading the earlier posts in this series you now recognize that if you're trying to get consequential damages, the first line of defense you must get through is proving that the other side contemplated your consequential damages at the time they entered into the contract.  There's several ways to do this.  But the easiest is putting proof of contemplation right in the language of the contract itself.  Where? 

Continue Reading...

• Email This
• Print
• Comments
• Share Link

In the last consequential damages post we talked about how direct damages and consequential damages get treated differently.  Today we're going to talk about why they get treated differently.  It's actually pretty simple - when people take more risk, they should get the opportunity to get more reward.

The Theory Of Why

It's pretty safe to assume that providers base the prices of their goods and services in part on the possibility that they'll have to pay damages to a customer if a good or service turns out to be defective.  And that part of pricing is usually based on the types, and the amounts, of damages they think are possible, or should think are possible - direct damages.

Now if a defect is going to cause the customer to suffer other types or amounts of damages - consequential damages - the provider's risk get s bigger, often exponentially.  And usually a provider who knows that they're taking on this greater risk will want the opportunity to adjust the price of their goods or services - raise the price so they get a bigger reward for exposing themselves to a bigger risk.

But if the provider doesn't know of the bigger potential risk, they can't consider raising their price.  It doesn't seem fair to stick a provider with bigger than expected risk without the opportunity for them to first consider asking for a bigger reward.  And that's why judges treat direct and consequential damages differently - to ensure that the provider gets the opportunity to consider the extra risk and the opportunity to ask for the bigger reward. How do they do that?  

Continue Reading...

• Email This
• Print
• Comments
• Share Link

While we're in the midst of talking about consequential damages here, a name synonymous with them is disappearing.   

According to Business Wire, the Perini Corporation name is history starting today.  This follows a 2008 merger with Tutor-Saliba Corporation.  The new name will be Tutor Perini Corporation.

The Perini Case

The name Perini gained notoriety, or infamy, depending on your point of view, in 1992 when the New Jersey Supreme Court decided the case of Perini Corporation v. Greate Bay Hotel & Casino, Inc.  In that case Perini worked as prime contractor building a the now demolished Sands Casino in Atlantic City, New Jersey.  The original guaranteed maximum price was around $16,800,000, later increased to $24,000,000.  Perini's fee was only about $600,000.  But when Perini finished the work late, the owner claimed over $14,500,000 in damages for lost profits because of time that the casino was not open to the gaming public.

Perini and the owner went to arbitration and the arbitrators awarded the owner over  $14,500,000 in damages - much of them categorized as consequential damages (e.g., lost profits from missed casino operating opportunities).  Perini appealed the arbitrators' decision all the way to the New Jersey Supreme Court.  The New Jersey's Supreme Court's affirmed the arbitrators' award.  That decision forever became known as "The Perini case."  And with it the name Perini became synonymous with consequential damages.

The effects of the Perini case were so dramatic that when the American Institute of Architects revised the A201 General Conditions part of their standard form construction contract in 1997, they added a mutual waiver of consequential damages from both the owner and the contractor.

The Merger and Name Change

As with many mergers and acquisitions, not long after the deal closes names get changed. So it's become with the Perini Corporation.  Not completely gone, but no longer the same.

Whether you loved or hated the The Perini case, it's namesake has become a kind of cherished byword in construction industry and construction lawyer jargon.  I'll be sad to see it go.  But still, at least among construction lawyers, "Perini" will endure as the most used shorthand way to refer to consequential damages.

• Email This
• Print
• Comments
• Share Link

In the last consequential damages post we talked about how to tell the difference between consequential damages and direct damages.  In this post we'll talk about why that difference makes a difference.

Workflow

After reading what by now must be hundreds of cases about consequential damages, I developed a 5 step workflow that helps me remember why the difference between direct and consequential damages is important.   

Workflow Step 1 - Damages Categorized

Start this step assuming that you've already categorized damages as direct and consequential as we talked about in the last consequential damages post.

Workflow Step 2 - Contemplation

Assume that when seeking damages against the side who breached the contract (the "breacher"), the other side (the "victim") must prove that at the time they both entered into the contract, the breacher contemplated all of the damages that the victim would suffer. 
Continue Reading...

• Email This
• Print
• Comments
• Share Link

Why Talk About Consequential Damages?

Why talk about consequential damages? Because they're a big money and a chronic problem. They're an issue that affects the negotiation of every prime contract, subcontract, and architects agreement. And they're often a contentious issue in settlement negotiations, mediation, arbitration, and litigation. So this will be the first installment in a series on consequential damages.

Topics in this series will include:

• Identifying consequential damages - what makes then different from direct damages
• How consequential and direct damages are treated differently
• Why consequential and direct damages are treated differently
• Practical considerations to better your odds of getting consequential damages and lowering the odds you'll have to pay them

The toughest question: what are consequential damages? Put another way, what makes some damages consequential, and others not?

Two Types of Damages?

When it comes to breach of a contract, damages fall into one of two categories:

• Direct damages (a/k/a general damages)
• Consequential damages (a/k/a special damages)

How do you tell which category damages qualify for? It's tough. Many decisions written by many judges have tried to answer that question. The earliest, and most often cited, is the 1854 English case of Hadley v. Baxendale.

Continue Reading...

• Email This
• Print
• Comments
• Share Link