Liquidating damages

In construction contracts, you’ll most often see liquidated damages apply when the contractor breaches the contract by not finishing the work on time.

Frequently you’ll see some formula for liquidated damages.

With no enforceable completion date, the client would lose any ability to claim liquidated damages for other delays that are the contractor's fault.

It is very important when deducting liquidated damages to ensure that the correct contractual procedures are adhered to.

Liquidated damages are not penalties, they are pre-determined damages set at the time that a contract is entered into, based on a calculation of the actual loss the client is likely to incur if the contractor fails to meet the completion date.

They might include; rent on temporary accommodation, removal costs, extra running costs, and so on.

If there was no such mechanism and a delay occurred which was not the contractor’s fault, then the contractor could no longer be required to complete the works by the completion date and would only have to complete the works in a 'reasonable' time.

However, in some circumstances, the parties to the contract will wish to exclude liquidated damages.

In this case, they should not simply insert 'nil' as the rate of liquidated damages, as this can imply that the loss for unliquidated damages is also nil.

They are generally set as a fixed daily or weekly sum, although there may be a more complicated formulae where the works are phased, where may be partial possession and so on.

It is important that the method of calculation is precisely and formally documented.

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