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Dec182012

Owner Waives Claim For Liquidated Damages By Failing To Follow Claim Procedure In AIA A201

A recent case issued by the Court of Appeals of Tennessee should give comfort to general contractors and pause to owners.  In RCR Building Corp. v. Pinnacle Hospitality Partners, 2012 WL 5830587 (Tenn. Ct. App. November 15, 2012), the Court held that the owner waived its claim against the general contractor for liquidated damages because it did not submit the claim in accordance with the procedures set forth in the contract.  The parties executed the AIA A111 Contract Agreement, which incorporated the AIA A201 General Conditions.  The owner asserted liquidated damages against the general contractor for delays.  The general contractor argued in a Motion for Partial Summary Judgment that the owner had failed to submit its claim for liquidated damages in accordance with the procedures set forth in the contract and, therefore, waived the claim.  The trial court rejected the general contractor’s argument.

On appeal, the Court of Appeals held that:  (1) pursuant to paragraph 4.3 of the A201, the owner’s claim for liquidated damages was, in fact, a claim as defined therein; and (2) the trial court should have allowed the general contractor’s motion because the owner failed to submit the claim in accordance with the contract.  The Court of Appeals rejected several arguments of the owner, including that a claim for liquidated damages is not a claim as defined by the A201 and that an owner’s claim for liquidated damages was self-executing.  In essence, the Court of Appeals held that the dispute resolution procedures in the contract were applicable to both contracting parties.

This can be a particularly useful case for general contractors in two distinct scenarios.  First, the obvious use is to defeat, potentially, an owner’s claim for liquidated damages for failure to comply with the contract’s notice provisions.  This case can also be used to defend an owner’s assertion of virtually any backcharge if the owner failed to comply with the notice provision.  Second, and less obvious, this case can help the contractor in negotiating the terms of its contracts with owners.  Often, owners will try to modify the A201 notice provisions and other provisions addressing claims by expressly limiting the applicability of those provisions to the general contractor’s claims only.  With this case, general contractors can now point to an appellate court decision that supports the clear and unambiguous language of the A201 in negotiating the terms of the claims provisions of the contract.

Please contact Jack DiNicola for additional information.

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