108.10 Liquidated Damages
Liquidated damages for department oversight costs are specified in subsection 108.10.C.1 of the 2012 Standard Specifications for Construction. These damages represent the additional cost of engineering and supervision due to a contractor’s failure to open to traffic or complete work within the specified contract time. These liquidated damages will be identified as the pay item “Liquidated Damages, Oversight”.
Liquidated damages for other department costs are described in subsection 108.10.C.2 of the 2012 Standard Specifications for Construction and these represent the inconvenience to the public, maintenance of detours, and other items that have caused an expenditure of public funds due to the contractor’s failure to open to traffic or complete the work within the specified contract time. These liquidated damages, when applicable, may be combined with liquidated damages described in subsection 108.10.C.1. Liquidated damages for other department costs will be identified as the pay item “Liquidated Damages, Other”.
Liquidated damages for user delay costs are to be assessed with the pay item “Liquidated Damages, Other” as these liquidated damage values are not associated with subsection 108.10.C.1. These liquidated damages are not to be described in the progress clause, incentive special provisions, the special provision for maintaining traffic, or any other contract documents. A unique special provision must be developed when applying liquidated damages for other department costs. The special provision is to be titled Special Provision for Liquidated Damages for Other Department Costs. These damages may be specified by the hour, day, or some other increment of time, and must be supported by a user delay analysis. The monetary amount of damage per unit of time must not exceed the user delay monetary amount per unit of time.
The calculation of liquidated damage values (e.g. user delays costs) for other department costs must be documented and placed in the appropriate project folder in the ProjectWise directory.
The Contract Modifications, which follow or accompany the request for extension of contract time, should merely revise the contract completion date according to the approved Form 1100A and should include a statement that the amount of liquidated damages will be determined following completion of the project and determination of final contract quantities.
Generally, liquidated damages will only be assessed due to lack of effort, organization or ability to perform on the Contractor’s part. Liquidated damages for failure to complete on time should not be assessed if time extensions have been approved.
Whenever the Engineer recommends an extension of time, a statement should be included on Form 1100A regarding the assessment of liquidated damages. If additional work has been performed or will be required, if contract quantities have been increased sufficiently, or if delays not the fault of the Contractor have occurred (on calendar day projects), the Engineer may recommend that a portion, or perhaps all, of the estimated additional time required be without assessment of liquidated damages. When, in the opinion of the Engineer, there is no justification for an extension, or portion thereof, without assessment of damages, the following or similar wording is suggested for Form 1100A.
Contract Time in Working Days. In the absence of any justification for an extension of time without assessment of liquidated damages, it is recommended that the contract time be extended X working days and liquidated damages be assessed following the expiration of X working days. This assessment is subject to revision, however, if subsequent extensions of time are granted without damages in accordance with subsection 108.09 and 108.10 of the standard specifications.
(Note: X = Original contract time in working days + any previously authorized extensions without damages).
Calendar Date Completion. In the absence of any justification for an extension of time without assessment of liquidated damages, it is recommended that the completion date be extended to (date) with liquidated damages to be assessed after Y. This assessment is subject to revision, however, if subsequent extensions are granted without damages in accordance with Article 108.09 and 108.10 of the standard specifications.
(Note: Y = Original contract completion date, or previously authorized extensions thereof, without assessment of damages).
Calculation of Extension of Time with Liquidated Damages
- The Contract has a completion date of September 15, 2013. There is no specified Open to Traffic Date.
- The Contractor continues to work until all work is finished which is October 15, 2013.
This results in 30 days of time over the allotted contract time. The Contractor claims that part of this is due to 6 days of bad weather that the Engineer has documented. The other 24 days are due to circumstances under the Contractor’s control.
Calculation of Liquidated Damages due to weather: MDOT contracts assume 4.5 days of work per month (30 day period) are lost due to bad weather. These “given” bad weather days are exempt from Liquidated Damages (LD) per 108.08 of the 2012 Standard Specifications for Construction (SSFC). For the additional weather delays LD do apply and the formula for calculating this is located in section 108.08.D.01 of the 2012 SSFC:
- (Number of Days) X 2.0 = Days of weather extension W/O LD’s
- (6.0 - 4.5) X 2.0 = 3.0 days
Therefore the Contractor will receive 6.0 days of extension, 3.0 without LD’s and 3.0 W/ LD’s. However, only 6 days were documented as lost due to weather. Since the delay was within the Contractor’s control for the 24 remaining days of the Extension of Time LD’s would apply.
In summary of the 30 days requested for Extension of Time, 3 days are granted without LD’s due to bad weather, 27 days are granted with LD’s applied per the contract documents.
Note: this example is after September 15th and that there is a different factor to apply for projects with completion dates before September 15th and also for the partial months of April and November.
The purpose of this section is to describe the process a local agency may use to request cost reimbursement for liquidated damages (LDs) assessed to the contractor.
If LDs are assessed on a project for items covered under Section 108.10.C of the 2012 Standard Specifications for Construction and the local agency is not going to pursue reimbursement for the items, nothing further needs to be done; process the contract modification as usual.
If the local agency is going to pursue reimbursement for the items, complete the following steps after the contractor signs the contract modification, or in the case that they refuse to sign, once the required wait period is over:
1. The LPE will prepare a letter to MDOT’s Local Agency Programs office indicating they are requesting compensation for items covered under Section 108.11.C of the 2012 Standard Specifications for Construction. The LPE will attach the letter to the contract modification for LDs and submit it to the DR for approval. Once approved by the DR and LPE, the LPE will forward a copy of the contract modification and letter to the Local Agency Programs office. Local Agency Programs staff will authorize local agency construction engineering on the project up to the amount of the contract modification for LDs, and forward the contract modification and letter to the Financial Operations Division.
2. Document the costs for which the local agency is requesting reimbursement on Form 802P, Local Agency Request for Reimbursement. The maximum amount the local agency can be reimbursed will be what is assessed in LDs to the contractor on the project. The local agency will also certify the following on Form 802P or an attached letter:
- The charges included are justified.
- The charges occurred during the period of the LDs, or directly related as a result of the LDs.
- The LDs were assessed to the contractor.
Documentation shall be attached to the form. A request for reimbursement must be received by the Financial Operations Division’s Project Accounting Section within 90 days of the date of the most recent local agency authorization for construction engineering, or 90 days from the approved contract modification for LDs.
3. The Project Accounting Section staff will review and record the costs incurred by the local agency. At the time of the final project accounting, the local agency will be reimbursed the lesser of:
- a. total local costs incurred, or
- b. total LDs assessed to the contractor.
Prior to completing this task, the Project Accounting Section staff will check with the DR to be sure there are no outstanding claims or other project items that may change the LDs assessed on the project. Local reimbursement is netted against any outstanding local share of total project costs. Requests to process reimbursement prior to final accounting will be done on a hardship basis only.
4. If the amount of LDs is more than the amount for which the local agency is seeking reimbursement, a proportional share of the excess will be deducted from the federally participating contract construction costs before determining the final federal or state share. This step will be completed by the Project Accounting Section staff.
Delivery/project engineers are requested to share this instructional article with local government and consultant engineers within their jurisdiction.
Questions regarding cost reimbursement can be directed Kelly Crannell, PE, MDOT Local Agency Construction Engineer.