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Liquidated Damages: Why should you look over it?

In times that a delay happens, you might become responsible for paying liquidated damages to your builder. So even before you start construction, you better look closely at the contract clause on this matter.

Contracts Specialist can even help in going over your construction contracts. Book a consultation now and get expert legal advice.

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Liquidated Damages

Liquidated damages are damages that could arise due to a contract breach by any party. This could be losses due to additional expenses on operations or due to the project delays. This could be not limited to physical damages, as you can get compensated for profit losses.

In this situation, the one who committed the breach will have to pay the other party a predetermined amount. This amount is stated in the contract or decided by a court when the breach happens.

If the amount is stated in the contract, then you can find it in a respective liquidation damages contract clause. But if the amount is considered to be ‘at large’, then it is up to the court to give financial compensation.

Liquidated Damages Versus Unliquidated Damages

The difference between liquidated damages and unliquidated damages lies on the time when it is set. Liquidated damages are amounts set prior to the signing of the contract. On the other hand, unliquidated damages are amounts impossible to foresee before construction starts.

Another key difference of these damages it the necessity of proving its validity in court. Since liquidated damages are pre-determined, there is no need to prove that it happened because it is a certainty. But for unliquidated damages, you would need show solid proof before recovering compensation.

Putting a contract clause on liquidated damages provides some sort of security, but unliquidated damages make room for unforeseen circumstances. So, including this clause would require a good grasp of what is to come for the construction project.

Contract Clause on Liquidated Damages

The Liquidated damages clause will depend on what you have agreed on the contract. It can be set on a daily or weekly basis. You can determine this amount in the contract through an estimation if the expected completion date is not met. But, this should not exceed the contract’s total price.

This amount would have to be paid from every day after the contractual completion date to the actual completion date. But, the principal contractor can write a request for liquidated damages anytime whether the work has been completed or not.  

Some of the reasons you can demand liquidated damages for a delay include:

  • A variation that could give you some sort of inconvenience;
  • Late access to the construction site due to issues on permits or certifications;
  • A cultural heritage artefact has been discovered in the construction site;
  • There is an order to suspend construction work;
  • A contract breach has happened or;
  • Any other reason that you can agree to the contract as justification for demanding compensation.

Why note possible liquidated damages?

You should note a liquidated damages contract clause as a preventive measure for construction delays or contract breaches. It gives some sort of financial assurance to the builder when a contractor messes up.

It makes the contractor do their work properly, prompting them to render their services on skillfully and on schedule. This also serves as a measure for both parties to follow the contract properly or else pay extra. The one who makes the contract breach should take responsibility for the other party’s inconvenience.

So, it becomes important to take in consideration on what can happen during construction and note the possible cost of any potential risk.

Dealing with Liquidated Damages

The Liquidated Damages contract clause applies when a delay or a contract breach has happened. When this happens, the concerned party will have to write a letter of demand to the one who committed the breach.

This letter must refer to liquidated damages the party has to pay as specified in the contract. This will make enforcing this claim in court easier. If the contract does not have any specific clause regarding these then it may be difficult to make the claim.

Also, you may even get penalty points if your claim is not genuine, even it has been predetermined. If the court finds out that your claimed amount is too large, you would not be able to get compensation.

Building & Construction Lawyer in Sydney - John Dela Cruz | Contracts Specialist

Get help on Liquidated Damages

Know when to use a liquidated damages contract clause or not. Contracts Specialist can help you go over your construction contracts, including the contract clauses that you should include. We will help you can make better decisions that will lead to the success of the construction project.

We can also help you enforce your rights in claiming liquidated damages whether in court or tribunal. We are very familiar with the legal processes of Fair Trading and NCAT, so you would be guided in what to do.

If you need help in reviewing your contract, book a consultation now. The first consult is FREE.