Legal Question in Construction Law in California

There is a significant legal pitfall in that California law prohibits forefeitures. There is also a serious practical problem. Every contractor who passes the deadline would then have no incentive to finish the job. Your solution lies in a liquidated damages clause, which are actually required in public construction contracts under the Public Contracts Code. LD clauses most commonly provide for a per-day dollar amount that the contractor will be deemed to owe as damages for breaching the completion time term of the contract. The key limitations on LD clauses are: 1) the contract must contain a clearly stated completion date and define completion (trust me there are hundreds of years of litigation over what "completion" means when it wasn't clearly spelled out); and 2) the dollar amount must not be a forefeiture, but rather must be a reasonable and good faith estimate of the cost to the owner of each day completion is not achieved. The second factor does not have to be precisely calculated, since the point of LD's is to relieve the owner of having to prove actual damages, but it has to "pass the smell test" as an estimate of damages, not a penalty or forfeiture. If you have a LD clause in the written contract, you can deduct the LD's from payments to the contractor. One final warning, due to LD clauses, who and what caused delays has become one of the most hotly litigated issues in construction law. While working in the SFO General Counsel's office as lead Construction Counsel, I signed off on invoices that totaled over half a million dollars to scheduling and delay analysis expert witnesses for a single case where we claimed LDs and the contractor claimed owner-caused delays, and that case never even got to the expert's depositions, much less trial. So, depending on the project, don't assume the contractor will always roll over just because there is a LD clause. It just gives you the upper hand.

I would be happy to draft you a custom agreement that would provide for specific remedies in case of such events.

Best,

Daniel Bakondi Esq.

The Law Office of Daniel Bakondi

870 Market Street, Suite 1161

San Francisco CA 94102

Daniel Bakondi, Esq. [email protected] 415-450-0424

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San Francisco Business Attorney

For the reasons mentioned in Mr. McCormick's answer, penalties, negative incentives, liquidated damages clauses and the like are not such a great idea in small contracts such as those involving homeowners or owners of smaller commercial or apartment properties. If you don't have a full-time, on-site project manager, fully engineered plans and specifications, job-specific performance and completion bonds, etc., your job is probably too small. A far better plan is to obtain multiple references that attest to your contractor's ability to complete the job on time, within budget. Another frequent problem is that the contractor lacks sufficient funding or know-how to handle the job on a tight schedule, so you might ask for his D&B or bank references and do a credit check. Frequently, it is unpaid subs or inability to prepurchase material that interferes with completion. Finally, the owner or the owner's architect needs to monitor progress carefully and frequently, and become a squeaky wheel at the first hint that the subs weren't paid, the workforce missed a day when it wasn't even raining, the steel hasn't been delivered. and so on. Delays need to be nipped in the bud.

You have remedies already established in the law for breach of contract that you may utilize if you choose to litigate the matter. Contact me directly.