Southwest Engineering Company v. United States

United States Court of Appeals for the Eighth Circuit · 1965 · Contracts

341 F.2d 998 (8th Cir. 1965)

Updated July 26, 2026

ContractsLiquidated damagesGovernment contractsDelay in performancefederal contract lawpenaltydelay damagesexcusable delay

Facts

Southwest entered into four federal construction contracts, each with a completion date and a per diem liquidated damages clause for delay. The contracts also provided that the contractor would not be charged for delays due to unforeseeable causes beyond its control, including acts of the Government, and administrative proceedings granted time extensions for excusable delays. After those extensions and one partial remission, the Government withheld $8,300 for delay beyond the administratively extended completion dates. The parties stipulated that although the projects were completed late, the Government suffered no actual damage on any project.

Issue

May the Government enforce contractual liquidated damages for delay after administratively crediting excusable or government-caused delays, even though the Government caused some delay and ultimately suffered no actual damages? Does the stipulation of no actual damage make the delay clause an unenforceable penalty?

Rule

Federal law governs federal contracts. A liquidated damages clause is enforceable, rather than a penalty, when at the time of contracting the stipulated amount is a reasonable forecast of just compensation for anticipated harm and the harm is incapable or very difficult of accurate estimation. The clause is judged as of the time the contract was made, not by later events, and proof that actual damages were less than, or even nonexistent, does not bar recovery. Government-caused delay does not defeat liquidated damages for other days of delay attributable to the contractor, so long as the contractor is relieved for the excusable or government-caused days.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Riverton Builders signed a federal contract to renovate a navigation facility outside Tulsa, Oklahoma. The contract set liquidated damages at $400 per day for late completion; after performance, the parties stipulated that the agency ultimately suffered no actual loss from the 12-day unexcused delay.

If Riverton argues the clause is unenforceable solely because the agency admits it suffered no actual damage, how should a court rule?

Explanation. The majority held that a liquidated-damages clause is judged as of the time of contracting, not by hindsight after breach. If the amount was a reasonable forecast of just compensation and the harm from delay was incapable or very difficult of accurate estimation, later proof of no actual damages does not bar recovery. (Derived from Southwest Engineering Company v. United States (1965).)