Iowa Court of Appeals Concludes that Liquidated Damages Provision Limits Contractor’s Damages Recovery from Supplier

09.22.2026

In Bridge Gap Engineering, LLC v. American Pfeiffer Corp., 2025 WL 2800060 (Iowa Ct. App. Oct. 1, 2025), the Iowa Court of Appeals held that the parties’ liquidated damages provision limited the contractor’s damages recovery from its supplier. The parties’ purchase order contained a liquidated damages provision that read, “SUBJECT TO SECTION a.4 OF EXHIBIT B, THE CONTRACTOR'S MAXIMUM LIABILITY TO THE OWNER FOR PERFORMANCE LIQUIDATED DAMAGES IS 15% OF THE CONTRACT PRICE IN THE AGGREGATE.” The parties’ dispute centered around whether the document containing that provision – Exhibit B – was part of the parties’ purchase order.

“Bridge Gap contracted with Continental Cement Company, L.L.C. to upgrade the company's Davenport cement plant by installing a new high-efficiency separator from Christian Pfeiffer. . . . After the separator was installed, Bridge Gap alleged the finish mill system at Continental's plant failed to conform to the required performance guarantees set out in Exhibit B to the purchase order. So Bridge Gap, on its own behalf and as assignee of Continental, sued Christian Pfeiffer for breach of contract, negligent misrepresentation, and fraud, with a demand for $7,000,000 in damages. . . . Bridge Gap moved for summary judgment on all three of its claims . . . [and argued] that the liquidated-damages provision was ‘not part of the parties’ contract’ and that the provision conflicted with the remedies section of the purchase order's terms and conditions. . . . Christian Pfeiffer replied, asserting that its contract with Bridge Gap included the liquidated-damages provision in Exhibit B, which was consistent with the remedies section in the terms and conditions. Christian Pfeiffer argued that under the liquidated-damages provision, its damages should be limited to fifteen percent of the contract price, which it contended was the amount due under the purchase order—$765,000—and not the amount of the underlying contract between Bridge Gap and Continental.” The district court agreed with Pfeiffer and awarded Bridge Gap $114,750 in damages, which was 15% of the $765,000 purchase order price. Bridge Gap appealed.

On appeal, Bridge Gap argued, among other things, that the liquidated damages provision was not part of the purchase order, and, even if it was, the “terms and conditions of the purchase order negated the liquidated-damages provision.” The Iowa Court of Appeals rejected these arguments and affirmed the district court’s ruling.

The Court started its analysis with the purchase order. It noted that the “purchase order that Bridge Gap submitted to Christian Pfeiffer for the separator stated: ‘Equipment performance to comply with previously agreed guarantees which are part of the final contract included as “Exhibit B.”’ Exhibit B was attached to the purchase order, along with Bridge Gap's ‘terms and conditions for purchase of goods and services.’” The very first paragraph of section 1 of Bridge Gap’s terms and conditions stated, “This purchase order, together with these Terms and Conditions, and any attachments and exhibits ... whether physically attached or incorporated by reference (collectively the “Purchase Order”), constitutes the entire and exclusive agreement between Bridge Gap Engineering LLC (the ‘Buyer’) and the Supplier (‘Supplier’) identified on the first page of this Purchase Order.” (italics in original). The Court explained that “‘[u]nder the doctrine of incorporation, one document becomes part of another separate document simply by reference as if the former is fully set out in the latter” and is ‘to be interpreted as part of the writing.’ Because the purchase order clearly referred to Exhibit B, which was also attached to the order, the district court correctly concluded that it was part of the parties’ contract.”

Bridge Gap countered that “because the liquidated-damages provision in Exhibit B ‘is contrary to the remedy provided by section 21’ of the terms and conditions, ‘any purported limitations of liability of Exhibit B are not part of the Purchase Order.’” The Court rejected that argument because its premise was incorrect. Contrary to Bridge Gap’s contention, Exhibit B was not some separate document that was outside of and subject to the parties’ contract, but instead was part of the parties’ overall contract: “Because Exhibit B and its liquidated-damages provision was attached to and incorporated in the purchase order, it is not a different or additional term subject to this provision. Instead, it's part of the contract being interpreted and construed.”

The Court also rejected Bridge Gap’s contention that the liquidated damages provision in Exhibit B conflicted with the terms and conditions, and, therefore, was inapplicable. The Court explained that “the canon that holds that a specific provision controls over apparently conflicting general provisions” applied so that any conflicts between the liquidated damages provision and the terms and conditions were resolved in favor of the liquidated damages provision. The Court agreed with the district court’s reasoning that “remedies section [in the terms and conditions] ‘reads as a general catch-all provision,’ unlike the liquidated-damages provision, which ‘specifically identifies the classes of damages that it limits, namely, “Performance Liquidated Damages” and damages “Under the Contract.” Because Exhibit B's damage cap is more specific than the [terms and conditions], it must be treated as modifying and superseding the boilerplate language of the [terms and conditions]. Thus, the Liquidated Damages Clause applies to the damages awarded in this case.’”

The lesson from this case centers around the doctrine of incorporation by reference, which, as the Court explains, says that “one document becomes part of another separate document simply by reference as if the former is fully set out in the latter.” The lesson is that if parties to a contract want another document to become part of the contract, they need ensure that such document is specifically referenced in the contract as being incorporated. A corollary to that rule is that if a party does not want part an otherwise incorporated document included as part of its contract, then it has to include language in the contract that explicitly excludes that part of the incorporated document. In this case, the incorporated Exhibit B was part of Bridge Gap’s contract with the project owner. As applied to that contract, the liquidated damages provision was quite advantageous to Bridge Gap, because it capped Bridge Gap’s total performance liability under its $6,770,935 contract with the owner to $1,015,640.00, which was 15% of that contract price. However, as applied to the purchase order with Pfeiffer, that same liquidated damages provision was quite disadvantageous to Bridge Gap because it capped Pfeiffer’s total performance liability under the $765,000.00 purchase order to $114,750.00, which was 15% of the purchase order price. This meant that Bridge Gap was liable to the owner for $1,015,640.00, but Bridge Gap could only recover $114,750.00 from Pfeiffer who caused the damages. So contractors need to be careful with the doctrine of incorporation.