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Preserving Damages Claims on Construction Projects May Turn on Contract Compliance

Contractors seeking to recover damages on a construction project in Maryland must ensure they have complied with any requirements in their contracts, or else the claim may be lost.

Unfortunately, in many situations, a contractor may have waived its right to bring forth a claim by failing to follow the notice requirements outlined in their contracts or a contractor’s damages are limited by a provision contained within the contract.

Several contract clauses affect a contractor’s right to recover damages on a construction project in Maryland. Here is a list of the most prominent provisions that sometimes get in the way:

No damages for delay:  Bars recovery by a contractor or subcontractor for delays that result in damages or extra costs. A contractor may be given additional time to complete the work, but would be precluded from a monetary reimbursement. Contractors may be able to overcome this clause in Maryland with a showing that the delays were caused by intentional wrongdoing, gross negligence, or the delays were the result of fraud or misrepresentation. 

Notice of claims requirement: –Requires the contractor seeking recovery to provide notice of a potential claim to the higher-tiered contractor or owner within a specific amount of time. Failure to provide the notice will result in the waiver of the claim. These provisions should be identified and negotiated before execution of the contract.

Waiver of liens: Maryland law precludes contractors from waiving their right to bring forth a mechanic’s lien; however, construction contracts can require that a contractor execute a partial or final waiver of lien in exchange for payment. Prior to executing a waiver of lien, a contractor must ensure that it is not releasing potential claims that are not encompassed in the payment to be received. For example, if a contractor executes a waiver of lien for payment of $40,000.00 for work performed in July, which does not include a $10,000.00 unapproved change order, the contractor may be inadvertently releasing its claim on the $10,000.00 unapproved change order as well.

Limitation on consequential and indirect damages: Bars the recovery of consequential and indirect damages, which are losses or injuries not directly arising out of the contract, but that result from the breach of the construction contract.  Consequential damages arising out of a construction contract include: interest and finance charges, material escalation costs, loss of productivity and efficiency, home office costs, and down time.

Fee shifting: In Maryland, attorneys’ fees can only be awarded to a prevailing party in litigation if prescribed by the law or if agreed upon in the contract.

For more information please contact Michael Siri at 410-583-2400 or siri@bowie-jensen.com

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