New Liquidated Damages Provision for Public Works Contracts

By April 19, 2016 October 25th, 2018 Construction Litigation Blog, James Wakefield
James R. Wakefield

James R. Wakefield

On January 1, 2016, Section 7203 of the California Public Contract Code went into effect, impacting public works construction projects. Initially, the statute seems to provide protection for the unwary contractor doing business with a public entity in California. It prohibits the public entity from pursuing damages for delay from a contractor if the public works contract contains a clause that expressly requires a contractor to be responsible for delay damages, and the delay damages are not liquidated to a set amount. Liquidated in this instance means the contract sets forth a specific dollar amount per day that the contractor can be liable for if there is a delay caused by the contractor in lieu of actual delay damages.

Unfortunately, between the specific exceptions for certain state agencies, and the language of the statute itself, one wonders whether it provides any additional safeguard for contractors. First, Section 7203 does not apply to contracts with the Departments of Transportation, Corrections, Water Resources, Water Ways, Military, or General Services. From a fiscal perspective, the state exceptions to Section 7203 probably dwarf the departments affected by the statute.

Second, by its language, Section 7203 applies only to public works contracts that contain a clause “that expressly requires a contractor to be responsible for delay damages.” What if the contract contains no such language? Does Section 7203 apply if the contract merely provides that the parties acknowledge that the public entity will suffer harm if the project is not completed by a particular date? What if the contract says nothing at all except that the project is to be completed by a specific deadline? Can a public entity obtain damages or a “set-off” of sums owed if it can prove it was harmed? We assume that the answer is yes. The courts will not infer a circumstance that is not clearly indicated by the statute.

Section 7203 seems to provide illusory protection for contractors at best. You’ll want to carefully read your public works contracts or have a lawyer review them to ensure compliance with this new law. If you have questions, feel free to contact me via email at jwakefield@cwlawyers.com or call me at (949) 852-1800.