Aird & Berlis Successful in Construction Act Adjudication Relating to Liquidated Damages Provisions

In February 2025, Aird & Berlis successfully represented a municipality in an adjudication under the Construction Act. The dispute arose in the context of a municipal infrastructure project, which included the construction of a bridge. The project was delayed and the contractor sought a determination in the adjudication that the municipality was not entitled to impose liquidated damages (“LDs”). In the result, the contractor’s claims were dismissed in their entirety by the adjudicator.

The parties agreed that the contract was to be substantially performed by October 2024; however, this milestone was not met. The contractor took the position that that this delay was caused by unexpected subsurface conditions, which differed materially from those indicated in the geotechnical information provided to it, and that this entitled it to an extension of time. The municipality’s position was that the subsurface conditions did not materially differ, and no extension of time was warranted.

The general conditions of the contract stipulated that, in the event of a failure to complete the work in accordance with the contract milestones, the municipality was entitled to apply LDs. The contractor challenged this, contending that the LDs were not a genuine pre-estimate of damages, and they were neither a fixed sum nor a formula. The contractor requested that the adjudicator require the municipality to pay back to the contractor the LD amounts and not impose LDs on the contractor in the future until the responsibility for the project delay was determined (through a separate arbitration).

Contrary to the contractor’s arguments, the adjudicator found that the LDs were enforceable. Based on evidence from the municipality’s staff, including as to how the LDs were calculated at the time the contract was entered into, the adjudicator determined they were a genuine pre-estimate of damages. The adjudicator further found that the fact the LDs included amounts for “third party costs” and “[a]ll other reasonable expenses arising from or attributed to the delay” did not mean they were not a formula, as claimed by the contractor.

With respect to the contractor’s request that no LDs be imposed pending determination of which party was responsible for the delay, the adjudicator found that he did not have jurisdiction under section 13.5 of the Construction Act (or any other part of it) to make an order in respect of any future withholding of LDs.

Aird & Berlis represented the respondent municipality with a team including Vedran Simkic, Danielle Muise and Pavle Levkovic (Construction).