Entering into a Construction Contract? Beware of the Liquidated Damages Clause!

Liquidated damages are an amount of money that contracting parties agree on as the amount of damages one of them can recover if a party breaches the contract.

Usually they apply to some specific type of breach of the contract, not any breach of any promise in the contract. In construction contracts, the liquidated damages clause applies where the contractor breaches the contract by not finishing the work on time. Usually, they are pre-determined amounts that are assessed on the basis of the total number of days the project is delayed.

Liquidated damages entitles a head contractor to be paid the above mentioned pre-determined amount to cover losses, expenses and damages of the head contractor for each day which the Subcontractor fails to achieve completion of the work set out in the contract. Liquidated damages clauses are usually insisted on in large scale contracts or contracts exceeding a few months.

These clauses should be approached with caution.

In the event your contract is for a period of one month a liquidated damages clause should definitely not be included in your Contract given the nature, time frame and value of the contract.

We strongly suggest you raise objection to the inclusion of a liquidated damages clause in a construction contract.

Ideally you should seek that this provision be excluded in your Contract however if absolutely necessary we suggest a figure be negotiated with the other party between $500.00 to $1,000.00 a day. You will need to assess for yourself how much you are willing to pay in the event the liquidated damages provision is triggered.

It is imperative you seek legal advice with regard to construction contracts generally and especially if your contract includes a liquidated damages provision. Advice should be sought prior to entering into a Contract with negotiations undertaken on your behalf.

Should you have any questions regarding this article, please contact:

Ms Pierrette Khoury,
Solicitor Director of Khoury Lawyers.

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