Recently, the Armed Services Board of Contract Appeals found that the U.S. Navy waived claims for liquidated damages and was unjustified in terminating a contractor when it allowed the contractor to miss the contract completion date and never set a new completion date.   The contractor, Consorzio Stabile GMG SCARL, was contracted by the U.S. Navy to install blast resistant doors at a facility in Bahrain.

Corsorzio’s contract  required the doors would be installed no later than September 29, 2019.  Consorzio had numerous problems in obtaining the properly designed and manufactured doors, but it wasn’t until February 2020 that the U.S. Navy raised any issue with the doors not being installed.  When it raised the issue, the U.S. Navy  did not reference the contractual completion date or the liquidated damage provision. It wasn’t until March 11, 2020 that the U.S. Navy issued a stop work order and attempted to terminate the contract for cause.

Consorzio complained that because the U.S. Navy did not raise any complaints until months after the completion date and allow Consorzio to attempt to complete the work and approve submittals that the completion date in the contract was extended.  When the U.S. Navy terminated the contract in March of 2020 claiming Consorzio was not making significant progress in completing the Project Consorzio responded that it could not be determined whether substantial progress was being made because there was no new completion date.

The Board of Contract Appeals sided with Consorzio, finding that the U.S. Navy could not terminate Consorzio for cause because the Consorzio has been allowed to “muddle through” for months to complete the Project without the U.S. Navy referencing the completion date or liquidated damages. The Board’s decision resulted in Consorzio being terminated for convenience which allowed it to recover damages allowed under the contract.

Even though this dispute involved federal government contracts, it serves as a reminder about the need to document problems and delays in writing throughout a private or public project. While most contracts have provisions that prevent waiver based on prior course of conduct, those contracts many times also require notices of default be placed in writing and require some specificity as to the basis for default or termination.  The Texas Supreme Court’s holding in James Construction underscores the need for specific performance for written notices, even if substantial performance may be allowed for other contractual requirements.

The attorneys in our Austin and Dallas offices have significant experience negotiating, litigating, and terminating construction contracts.  If you should have any questions about this blog, please contact us at info@gstexlaw.com.

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