Taking A Closer Look At The Issue Of Liquidated Damages

By Joseph Bond, Executive Director, Kenzie Consulting
www.kenzieconsulting.com

This month’s question was posed by a subcontractor in York.

Question:

What are liquidated damages, who pays them and when are they payable?

Answer:

Most binding construction contracts include a clause for liquidated damages.

Liquidated damages become payable in circumstances where a construction contract is late – breach of contract. The purpose of the contract will not be delivered on time.

This will obviously have an impact on the employer and may result in him suffering a loss. This, for example, may be a loss in rents for a contract to construct a house.

Liquidated damages are usually a pre-determined sum for the period of delay, this is an amount agreed in advance and so can avoid the parties having to calculate and agree a sum during the period of delay.

A contractor will be liable to pay the agreed amount of liquidated damages in the contract.

LD’s are usually payable at either a rate of a day, week or part week.

The contract will specify the date to which the contract should be completed.

If there is no specific date it can be assumed that a ‘reasonable period for completion’ will be applied reflective of the project.

However, where there is no fixed completion date LD’s will not be payable. A contract can, however, extended by an extension of time.

To establish payment for LD’s there must have been a breach of the contract, loss suffered and the loss that was suffered and the breach must be casually connected.

It is important that LD clause in a contract is drafted correctly as it is possible that the Court can render it unenforceable.

The Courts will uphold LD’s wherever possible.

LD’s cannot be used as a punishment for the late delivery of the contract and are only enforceable if they constitute a genuine pre-estimate of the loss or are a reasonable amount in the circumstances of the contract.

Do you have a contractual, technical or legal problem?

Or would you simply like to understand a particular issue better?

Would you like independent objective advice?

Therefore, if you have a question regarding any construction law, dispute resolution or quantity surveying matter then email info@modernbuilder.co.uk or joseph.bond@kenzieconsulting .com and we will publish a response in Modern Builder detailing our advice.

All correspondence will be treated with the utmost confidence.

The content of this article is provided for informational purposes only and does not constitute legal advice. This article is offered only for general informational and educational purposes. It is not offered as and do not constitute legal advice or legal opinions. You should not act or rely on any information contained in this article without first seeking the advice of a solicitor.