Contract Lawyers in Manassas – Limitation of Damages

A Carluzzo Rochkind & Smith note:   Following is an article by Virginia Lawyers Weekly. We did not handle this case, but it brings up important points your contract lawyer should be familiar with. For more than 20 years our contract lawyers in Manassas have helped clients with such matters in Prince William County, Fairfax County, Woodbridge, and throughout Northern Virginia. If you have any questions or would like to schedule an appointment, please contact our law firm at (703) 361-0776.

Limitation of damages clause violates Virginia law

By Virginia Lawyers Weekly – 2/19/2024

Where a contractor moved to enforce a limitations of damages clause in a subcontract, its request was denied because the clause was null and void under Virginia Code § 1-4.1:1.

BAE Systems Ordnance Systems Inc. sued Fluor Federal Solutions LLC, alleging breach of contract relating to the design and construction of an Army facility. Fluor counterclaimed for breach of contract or, in the alternative, quantum meruit or unjust enrichment.

The relevant subcontract contained three limitation of damages clauses which purport to limit the recovery of damages to $30 million. BAE moves the court to hold that one of these limitation on damages clauses limits Fluor’s claims for all proposed change notices, or PCNs, and other alleged damages to $30 million.

Fluor seeks a ruling granting summary judgment that (1) the subcontract’s limitation on damages provisions in the contract do not limit Fluor’s recovery for costs incurred performing BAE-caused changes on the project, and (2) the subcontract’s limitation on damages provisions are unenforceable to limit recovery through the changes clause as a matter of law under Virginia Code § 11-4.1:1.

All limitation on damages, or LOD, provisions are limited by the phrase “[e]xcept as otherwise provided in this Subcontract.” This language necessarily implies that there are exceptions to this general provision provided elsewhere in the subcontract. To hold otherwise “would render [the limiting language] meaningless.”

In particular, the changes clause provides the process by which BAE could direct changes to Fluor’s scope of work and by which Fluor could submit a PCN to BAE if such a change caused an increase or decrease in the cost of or the time for performance of the subcontract. It specifically provides that “if any such change causes an increase or decrease in the cost of or the time required for performance of the contract, an equitable adjustment shall be made in the contract price, the delivery schedule, or both.” This clause leaves no room for ambiguity — if there is a change made by BAE within the general scope of the contract there shall be an equitable adjustment.

To interpret the LOD provisions as applying to the changes clause would render the “except as otherwise provided” language meaningless and eviscerate the requirement that the parties “shall” reach an equitable adjustment wherever the scope of work or time of performance was changed. The changes clause makes clear that “nothing contained herein shall effect the right of the Parties to an equitable adjustment by reason of the change, pursuant to this clause.”

Additionally, the changes themselves are not damages, rather, as the subcontract makes clear, they are an equitable adjustment made by modifying the subcontract. For these reasons, I find that the LOD clauses specifically exempts from their limitation the recovery sought by Fluor under the changes clause.

Virginia Code § 11-4.1:1
Even if I were to hold that the LOD provisions applied to Fluor’s claims for unpaid PCNs, the LOD clauses are null and void under Virginia Code § 1-4.1:1 to the extent BAE seeks to limit Fluor’s ability to recover under the changes clause.

Section § 11-4.1:1 provides in relevant part: “[a] subcontractor … may not waive or diminish his right to assert payment bond claims or his right to assert claims for demonstrated additional costs in a contract in advance of furnishing any labor, services, or materials. A provision that waives or diminishes a subcontractor’s … right to assert payment bond claims or his right to assert claims for demonstrated additional costs in a contract executed prior to providing any labor, services, or materials is null and void.”

It is undisputed that Fluor is a subcontractor as defined by the statute. BAE seeks to enforce the LOD provisions to prospectively limit Fluor’s ability to seek damages for changes in excess of $30 million for its refusal to pay Fluor’s claimed PCNs.

The principal issue regarding the applicability of § 11-4.1:1 is whether Fluor provided “labor, services, or material” under the Subcontract prior to executing the Subcontract. I find that Fluor did not provide labor, services, or material under the subcontract prior to its execution, and thus § 11.4.1:1 applies.

BAE’s motion to enforce limitation of damages clauses denied. Fluor’s motion for partial summary judgment granted.

BAE Systems Ordnance Systems Inc. v. Fluor Federal Solutions LLC, Case No. 7:20-cv-587, Jan. 31, 2024. WDVA at Roanoke (Ballou). VLW 024-3-051. 13 pp.

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