## Facts

- The City of Worcester contracted with Space Master International, Inc. to supply and install modular classrooms to reduce overcrowding in public schools.
- A publicly bid contract required installation of twenty-three modular classroom buildings at nine school sites within 120 days for $1,514,559.
- The contract authorized liquidated damages for late performance at $250 per day plus $100 per day per site.
- Space Master completed the work more than 200 days late.
- The City withheld $254,400 as liquidated damages.
- Space Master sued to recover the withheld funds, arguing the liquidated-damages clause was an unenforceable penalty because it was not a reasonable forecast of loss and was disproportionate to actual damages.
- Alternatively, Space Master argued it should not bear the full assessment because delay was caused in part by the City, subcontractors, and factors beyond Space Master’s control.

## Issues

1. Under Massachusetts law, was the contract’s liquidated-damages clause enforceable or an unenforceable penalty?
2. On the summary-judgment record, could the clause be invalidated as a matter of law as not reasonably related to anticipated loss and disproportionate to probable harm?
3. If the clause was valid, what proceedings were required to determine what portion of delay was chargeable to Space Master and the resulting amount of liquidated damages?

## Decision

- The First Circuit reversed the district court’s summary judgment for Space Master.
- The court held that the liquidated-damages clause could not be declared an unenforceable penalty on this record.
- The case was remanded for further proceedings, including fact-finding on the causes of delay and any resulting adjustment to the amount of liquidated damages retained by the City.

## Legal Principles

- Under Massachusetts law, a liquidated-damages provision is generally enforceable where (1) actual damages were difficult to estimate at the time of contracting and (2) the stipulated amount was a reasonable forecast of anticipated harm, not grossly disproportionate so as to function as a penalty.
- In public construction projects, delay-related harms may be difficult to quantify in advance, supporting use of liquidated damages as a pre-agreed measure of compensation.
- Courts give weight to risk allocation in sophisticated, competitively bid contracts, and will not invalidate a liquidated-damages rate absent clear evidence it is punitive.
- Summary judgment is improper where material factual disputes exist concerning the reasonableness of the liquidated-damages forecast or the allocation of responsibility for delay.

## Conclusion

The First Circuit held that the public school modular-classroom contract’s liquidated-damages clause was enforceable under Massachusetts law and that the district court erred in invalidating it on summary judgment; the case returned to the trial court to determine delay causation and the proper amount, if any, the City could retain.


Space Master Int’l, Inc. v. Worcester, 940 F.2d 16 (1st Cir. 1991)