Construction Disputes Update:

Risk Allocation and the Availability of NonContractual Claims -

The fact pattern is all too common in complex commercial construction cases. Following extensive negotiations, an owner and a contractor execute an integrated contract addressing the parties’ various rights and obligations and attach a schedule identifying a date of completion. No sooner than the ink dries do the construction problems become apparent—labor and materials shortages, deficient construction, necessary rework. It is soon obvious that the contractor will not meet the schedule, and the owner suspects it never could. The project limps along toward completion with the parties eyeing litigation.

Eventually, the owner sues the contractor for breach of contract, fraudulent inducement, and negligence. Discovery confirms the owner’s hunch that at the time the parties executed the contract, the schedule date was at best aspirational and at worst utterly impossible, and the contractor knew it. But the contractor-turned-defendant is not worried about the owner’s claims—the contract contains favorable limitations on liability, a liquidated-damages clause, and a merger clause, and the economic loss rule will protect him from the owner’s tort claims. Or will it?