Opinion ID: 1277078
Heading Depth: 1
Heading Rank: 1

Heading: A. The Contract Between 1325 and T-3

Text: ¶ 6 On March 26, 2001, [2] 1325 and T-3 entered into a comprehensive 102-page contract consisting of the following: (1) a customized American Institute of Architects (AIA) Standard Form of Agreement Between Owner and Construction Manager where the Construction Manager is also the Constructor; (2) Amendment No. 1; (3) Contract Addendum; (4) Exhibits; (5) General Conditions of the Contract for ConstructionAIA Document A201; (6) Supplement to the General Conditions of the Contract for Construction; and (7) various drawings and finish specifications. ¶ 7 T-3 was hired to renovate an industrial warehouse building owned by 1325 into a 42-unit condominium complex, and construct attached parking garages. In addition to providing the necessary materials for renovation and construction, T-3 was to provide construction management services, meaning it had to hire, coordinate, and supervise the numerous subcontractors, and generally manage the project to ensure the renovation was completed on time and within budget. The contract called for 1325 to pay the cost of the work plus T-3's construction management fee up to a guaranteed maximum price of $6,099,891. Of this price, $176,000 constituted the fee for construction management. Absent change orders, costs in excess of the guaranteed maximum price would be borne exclusively by T-3. ¶ 8 There are a number of contractual provisions worth noting. First, there is a broad warranty clause that reads in part as follows: The Contractor warrants to the Owner, the condominium association to be formed, the unit owners and Architect that materials and equipment furnished under the Contract will be of good quality and new unless otherwise required or permitted by the Contract Documents, that the Work [3] will be free from defects not inherent in the quality required or permitted, and that the Work will conform with the requirements of the Contract Documents. The contract also contains the following noteworthy provisions: (1) T-3 agreed to promptly remedy damage and loss (other than damage or loss insured under property insurance required by the Contract Documents) to property [on the project site] caused in whole or in part by the Contractor, a Subcontractor, a Sub-subcontractor . . . . (2) T-3 agreed to indemnify 1325 against any claims for bodily injury or tangible property damage, other than to property that was part of the project, where the loss resulted from the negligent acts or omissions of T-3 or a subcontractor. In addition, the contract required that T-3 purchase contractual liability insurance to cover indemnification claims under § 3.18.1 of the General Conditions. (3) Explicitly excluded from project costs were [c]osts due to the negligence or willful acts or omissions of the Construction Manager, any subcontractor, anyone directly or indirectly employed by any of them, or for whose acts any of them may be liable, including but not limited to the correction of defective or non-conforming Work, . . . or making good any damage to property. (4) The contract listed reasons for which 1325 could withhold payment. (5) The contract included a liquidated damages provision requiring T-3 to pay $1,000 per day for each condominium unit not delivered on time. (6) The contract required T-3 to have a CGL policy with limits of $2,000,000. (7) The contract required T-3 to have an umbrella policy with limits of $4,000,000. (8) The contract provided circumstances under which it could be terminated before the project was completed. ¶ 9 Construction began in March of 2001. The contract required the first condominium units to be completed by October 15, 2001, and the last condominium units to be completed by January 15, 2002. Near the end of October 2001, however, the project was approximately 28 percent complete and none of the condominiums were substantially completed. Subcontractors caused accidental damage throughout the existing structure, and the project was seriously delayed. Dissatisfied with T-3's progress, 1325 notified T-3 that it was in default under the contract by letter dated October 31, 2001, and T-3 left the project site that same day. 1325 then entered into a contract with C.G. Schmidt, Inc. on January 8, 2002, to complete the project. ¶ 10 Because of T-3's failure to meet the contract milestones and specifications, 1325 alleges it incurred millions of dollars in damages. According to 1325's Amended Itemization of Damages, 1325 sought the following damages: [4] (1) overpayment to T-3 based on the percentage completion of work; (2) construction damages and defects; (3) completion costs in excess of original guaranteed maximum price contract amount; (4) additional project costs; (5) unrecoverable costs of work claimed by T-3; (6) injury to 1325's business reputation and lost opportunity damages; and (7) liquidated damages. Although the amount of actual damages is in dispute, the circuit court held the contractual liquidated damages provision, under which T-3's liability is $11,060,000, enforceable and that 1325 had elected to pursue liquidated rather than actual damages as its remedy for breach of contract.