Better Roads

October 2014

Better Roads Digital Magazine

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the wall from that area, and continue working on the east end "in the dry." The Port had reservations about this plan. Nonetheless, Change Order 4, using Zachry's approach to add a sixth section at a cost of $12,962,800, was finalized Sept. 27, 2005. Two weeks later, however, the Port ordered Zachry to revise and resubmit its plans without the cutoff wall. The practical effect was to disallow the cutoff wall. Zachry protested the Port had no right to determine its method and manner of the work, but the Port would not budge. Zachry's only option was to finish the west sections in time for the ship from China to dock, then remove the wall and continue to work "in the wet," which would delay completion and increase the cost. In negotiating Change Order 4, the Port promised not to impose liquidated damages as long as the ship from China could dock when it arrived, though the Port refused to put its promise in writing. Zachry com- pleted the project in January 2009, more than two- and-one-half years after the contract deadline. Despite its promise, the Port withheld $2.36 million in liqui- dated damages. In November 2006, several weeks after the Port disal- lowed construction of the cutoff wall, Zachry sued the Port, claiming $30 million in delay damages caused by the Port, and seeking recovery of the $2.36 million in liquidated damages. The Port countered the contract precluded delay damages. The trial court found the no-delay-damages provision could not be enforced if the Port's intentional misconduct caused the delay, and found the liquidated damages were invalid. After a three-month trial, the jury found that the Port breached the contract by reject- ing Zachry's cutoff wall design, causing Zachry to incur $18,602,697 in delay damages. The jury also found that the delay "was the result of the Port's ... arbitrary and capricious conduct, active interference, bad faith and/ or fraud." The trial court entered judgment for Zachry. Both parties appealed. The court of appeals held the no-delay-damages provision barred Zachry's recovery of delay damages, reversed the judgment for Zachry, and awarded the Port $10,697,750 in attorney fees. Zachry appealed. The Texas Supreme Court held the Texas Government Contract Claims Act waived the Port's immunity regarding Zachry's claim for delay dam- ages and the Port's no-damages-for-delay clause was unenforceable. The Zachry matter underscores the implications of no-damage-for-delay clauses. Given the potentially severe impact, no-damage-for-delay clauses should be carefully analyzed and drafted. In addition, contractors need to carefully analyze and characterize delays to at- tempt to bring them within one of the narrow excep- tions to no-damage-for-delay clauses. Otherwise, they might find themselves on the wrong side of a signifi- cant monetary result. Better Roads October 2014 27

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