Attorney Advises Rewards Vs Penalties For Completing Capital Projects

By John Voket

There is an old English idiom that says: You can catch more flies with honey than with vinegar. But according to several officials who spoke to the Board of Finance last Monday, the same concept can apply when providing contractors incentives to complete local capital projects on time.

Advice to that end came after a proposal earlier this month from finance board member Joseph Kearney to consider contractually stipulating financial penalties in the event contractors on municipal projects miss completion deadlines.

Monty Frank, who serves as an assistant town attorney, joined Public Works Director Fred Hurley and Public Building and Site Commission Chairman Robert Mitchell in advising against the idea of imposing liquidated damages clauses in capital building contracts during a December 13 meeting.

Both Mr Hurley and Mr Mitchell told The Bee previously that such a practice, while nearly impossible to enforce as a civil action, would also typically generate increased costs that could top 35 percent on projects. This because of the oversight contractors would require to defend against attempts to collect on the damages stipulation if completion deadlines were missed, Mr Mitchell said.

All three officials instead encouraged the town consider offering a cash incentive for contractors to meet deadlines in cases where projects required such considerations. Mr Kearney’s initiative arose after the finance board learned that repetitive missed move-in delays at Newtown High School were generating extra costs to the district, not limited to transporting sports teams to alternate, and/or renting such sites to practice and compete.

Mr Kearney agreed that a clause stipulating cash penalties for missed deadlines was “primarily psychological,” but said it was better than providing no ramifications if promised deadlines pass or cause the town to incur additional costs related to undue delays.

Mr Mitchell said “liquidated damages,” in his opinion, cannot be used legally as a means to penalize a contractor.

“If lateness approximates a damage, it crates a pile of paper,” Mr Mitchell said. “And it’s very difficult for [a project] owner to win.” He added that in more than 20 years as a commercial architect, he has seen that an “incentive of getting money is greater than penalizing” when it comes to getting contractors to deliver on schedule.

Mr Mitchell also told the finance board the town should not underestimate how a good project team and appropriate architect’s oversight can go far toward keeping a large municipal construction project on schedule.

The board and its guests discussed whether the Building and Site Commission should have the first say in recommending a deadline stipulation, and if attached penalties or premiums should be considered at the earliest stages of any future construction contract process.

Mr Frank, who arrived as the discussion was winding down, said that imposing financial deadline penalties could bring “unintended consequences.” And he said in his experience, the courts do not favor having liquidated damages in construction contracts.

“If there is any allegation that the [project] owner contributed to delays, the courts will throw them out,” Mr Frank said. “I prefer the incentive.” He said in the worst case, withholding final payment to the contractor if work is not completed satisfactorily may be the best leverage for a project owner.

After about 40 minutes of discussion on the damages versus bonus stipulation, attention turned to whether or not it would benefit the town to consider contracting to own architectural plans for certain building projects.

This suggestion, also from Mr Kearney, was borne out of the Newtown High School expansion project, which did not incorporate an option to own plans. Mr Kearney said that early on in the cost factoring for the expansion project, when estimates were coming in millions of dollars above what was anticipated, he wanted to take the plans to another architect for what in essence was a second opinion on the projected costs.

But since the town did not negotiate to own the plans, the original architect contract with the firm Fletcher-Thompson would not permit their plans to be used for that purpose.

Mr Mitchell explained that certain instances would allow original owned plans to be used in conjunction with future work engaging a different architect, but any subsequent use would require a new architect to indemnify the original design firm.

“You [would] own the paper –— not the intellectual property,” Mr Mitchell said of the plans’ content. “Plans are an instrument of service, so you don’t really gain anything by owning the drawings.”