In June, 2019, the Nebraska Supreme Court clarified a few important items regarding consequential and liquidated damages. The points are especially poignant regarding construction projects and construction agreements.
In U.S. Pipeline, Inc. v Northern Natural Gas Company, 303 Neb. 444 (2019) the Nebraska Supreme Court issued a concerning consequential and liquidated damages.
- The contract did not define “direct damages” so the Court used the common law (pg 466). It is important to properly define direct damages in your construction agreement. Direct damages in contract law are generally the difference between the value of the performance received and the value of the performance promised as measured by contract or market value. Direct damages do not include incidental or indirect damages, such as expenses incurred as a result of the non-performance or lost profits. Direct damages flow directly and immediately from the act of the party, rather than being from some of the consequences or results of such act.
- The Court found that damages related to extra work an owner requests are not “consequential damages” which were waived in the contract (pg 469). Thus, if you as an owner of a project submit a change order you should understand that the direct costs of the change order are not consequential damages, which often are waived in construction agreements.
- The Court found the project owner waived liquidated damages (pg 474-475). If your construction project is being delayed, especially due to extra work you are requesting, it is important to push the contractor to agree to a new completion date. The Court in this case noted:
Northern’s argument that U.S. Pipeline cannot avoid liquidated damages because it neglected to request additional time on its change orders is unfounded. By requesting the Extra Work, submitting the designs after the passing of the substantial completion date, and further failing to inform U.S. Pipeline that it intended to enforce the liquidated damages provision in the contract, Northern manifested a clear intent to waive the contractual liquidated damages provision. Northern knowingly requested Extra Work that would clearly exceed the substantial completion date. The district court’s determination that Northern’s conduct amounted to a waiver was supported by the evidence and cannot be said to be clearly wrong.
In the midst of a construction project, it is important to ensure that change orders address the completion date of the project. Costs related to change orders will be “direct damages” which are not waived even if consequential damages have been waived in the agreement.
Angela Madathil is happy to assist project owners with projects in Nebraska, Kansas, or Missouri review their construction agreement, and assist with compliance with the contract during projects.
Angela Madathil is a Nebraska Construction Attorney and provides legal assistance to Contractors, Roofing Companies, Siding Companies, Architects, and Engineers in Nebraska, Missouri, and Kansas. This can involve contract review and negotiation, ongoing contract guidance during a project, and risk mitigation when issues arise. The Goosmann Law Firm team advises Contractors, Architects, and Engineers throughout the Midwest and has attorneys licensed in Iowa, Kansas, Minnesota, Missouri, Nebraska, South Dakota, and other states.