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In a case decided on February 24, 2016, the Ohio Supreme Court construed the enforceability of a liquidated damages provision in a public works construction contract. The Court held that when evaluating the enforceability of a liquidated damages provision in a construction contract, the court must conduct its analysis prospectively, based on the per diem amount of the liquidated damages at the time the contract is executed, and not retrospectively, based on the total amount of liquidated damages that ultimately accrue.

In reversing the Court of Appeals, the Ohio Supreme Court determined that the mere fact that the liquidated damages totaled $277,900 (calculated at $700 per day times 397 days late) did not result in a finding that the amount of liquidated damages was unreasonable where the base contract amount was $683,300. The flaw in the Court of Appeals reasoning was that it applied a retrospective analysis using hindsight. The long-standing test in Ohio requires the analysis to be considered at the time the parties entered into the contract.

The Ohio Supreme Court also held that “liquidated damages are not deemed a penalty simply because a project consists of new construction of an improvement that did not exist previously and no proof of damages is required to enforce liquidated damages pursuant to such a contract.”

This decision also includes an interesting overview of the Samson Sales tripartite test for distinguishing between an unenforceable penalty clause and a valid liquidated damages clause.

To read the Slip Op. No. 2016-Ohio-628, Boone Coleman Constr., Inc., v. Piketon, visit: http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2016/2016-Ohio-628.pdf

Should you wish to consult with the author of this article, please feel free to contact Attorney Robert A. Hager at (330) 253–4925.