Liquidated damages in construction contracts - Revision history

Designing Buildings at 09:47, 14 December 2022

2022-12-14T09:47:49Z

← Older revision		Revision as of 09:47, 14 December 2022
Line 1:		Line 1:
−	[[File:Information-sign-~~gf23d0b6ac 1280~~.jpg]]	+	[[File:Information-sign-gf23d0b6ac_1280.jpg\|link=File:Information-sign-gf23d0b6ac_1280.jpg]]

	= What are liquidated damages? =		= What are liquidated damages? =
Line 53:		Line 53:
	As construction nears completion, there can be considerable pressure to allow the client or tenants to take possession of part of a building or site, even if the works as a whole are ongoing or there are defects that have not been rectified. This can be pre-programmed as part of the works through a contractual requirement for sectional completion, but in the absence of such a provision many contracts offer the more open-ended option of partial possession.		As construction nears completion, there can be considerable pressure to allow the client or tenants to take possession of part of a building or site, even if the works as a whole are ongoing or there are defects that have not been rectified. This can be pre-programmed as part of the works through a contractual requirement for sectional completion, but in the absence of such a provision many contracts offer the more open-ended option of partial possession.

−	Typically, the effect of partial possession or sectional completion of part of the works is to certify that those parts have achieved practical completion, and ~~so to relieve~~ the contractor of liability for liquidated damages for those parts.	+	Typically, the effect of partial possession or sectional completion of part of the works is to certify that those parts have achieved practical completion, and this relieves the contractor from liability for liquidated damages for those parts.

	In the case of sectional completion, it is important that separate completion dates and liquidated damages are set out in the contract for each section.		In the case of sectional completion, it is important that separate completion dates and liquidated damages are set out in the contract for each section.
Line 59:		Line 59:
	There can be complexities here however, where the ability of the contractor to complete one section on time is dependent on the previous section having been completed on time (the cascade effect). In this case the contractor will be liable for liquidated damages on each delayed section.		There can be complexities here however, where the ability of the contractor to complete one section on time is dependent on the previous section having been completed on time (the cascade effect). In this case the contractor will be liable for liquidated damages on each delayed section.

−	= ~~Early~~ use =	+	= The effect of early use on liquidated damages. =

	Early use can permit the client to make use of parts of the works that are not complete. In this case, the contractor may still be liable to pay liquidated damages in the event of late completion.		Early use can permit the client to make use of parts of the works that are not complete. In this case, the contractor may still be liable to pay liquidated damages in the event of late completion.

−	~~-----~~	+	= Liquidated damaged on construction management projects =
−	~~NB:~~ On construction management projects, trade contracts (such as the Joint Contracts Tribunal (JCT) CM/TC 2011) may not include provisions for liquidated damages, instead the trade contractor indemnifies the client's direct loss and/or expense for lateness.	+
		+	On construction management projects, trade contracts (such as the Joint Contracts Tribunal (JCT) CM/TC 2011) may not include provisions for liquidated damages, instead the trade contractor indemnifies the client's direct loss and/or expense for lateness.

	= Related articles on Designing Buildings =		= Related articles on Designing Buildings =

−	* ~~Reasonable time~~.	+	* Certificate of non completion.
−	* ~~Unliquidated damages~~	+	* Compensation event.
−	* ~~Extension of time EOT~~ in construction contracts	+	* Completion date in construction contracts.
−	* ~~Practical completion~~	+	* Concurrent delay.
−	* Delay damages	+	* Contract claims in construction.
−	* ~~Loss and expense~~	+	* Damages in construction contracts.
−	* Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd	+	* Defects liability period DLP.
−	* ~~Certificate~~ of ~~non completion~~	+	* Delay damages.
−	* Completion date in construction contracts	+	* Delays on construction projects.
−	* ~~Defects liability period DLP~~	+	* Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd.
−	* The distinction between liquidated damages ~~clauses and penalty clauses~~	+	* Extension of time EOT in construction contracts.
−	* ~~Relevant event~~	+	* Liquidated v unliquidated damages.
−	* Measure of damages for construction contracts	+	* Loss and expense.
−	* ~~Compensation event~~	+	* Measure of damages for construction contracts.
		+	* Octoesse LLP v Trak Special Projects Ltd.
		+	* Partial possession of the site by the client.
	* Penalty.		* Penalty.
−	* ~~Retention in construction contracts~~	+	* Practical completion.
−	* ~~Construction contract~~	+	* Reasonable time.
−	* ~~Variations in construction contracts~~	+	* Relevant event.
−	* ~~Partial possession of the site by the client~~	+	* Sectional completion in construction contracts.
−	* Damages in construction contracts	+	* The distinction between liquidated damages clauses and penalty clauses.
−	* ~~Delays on construction projects~~	+	* Unliquidated damages.
−	* ~~Liquidated v unliquidated~~ damages	+
−	* Concurrent delay	+
−	* Octoesse LLP v Trak Special Projects Ltd	+
−	* Sectional completion in construction contracts	+
−	* Contract claims in construction	+

	= External references =		= External references =
Line 101:		Line 99:
	* Boyes Turner: Liquidated damages clauses in construction contracts.		* Boyes Turner: Liquidated damages clauses in construction contracts.

−	[[Category:DCN_Definition]] [[Category:DCN_Guidance]] [[Category:Taxation]] [[Category:~~Project_activities~~]] [[Category:~~Construction_management~~]]	+	[[Category:DCN_Definition]] [[Category:DCN_Guidance]] [[Category:Taxation]] [[Category:Client_procedures]] [[Category:Contracts_/_payment]] [[Category:Cost_/_business_planning]]

Designing Buildings at 09:43, 14 December 2022

2022-12-14T09:43:11Z

← Older revision		Revision as of 09:43, 14 December 2022
Line 1:		Line 1:
−	~~= Introduction =~~	+	[[File:Information-sign-gf23d0b6ac 1280.jpg]]

−	~~Contracts generally include a clause making provision for the contractor to pay~~ liquidated damages (LD, sometimes referred to as liquidated and ascertained damages - LADs) to the client in the event that the contract is breached. In building contracts, liquidated damages usually relate to the contractor failing to achieve practical completion (i.e. completing the works so they can handover the site to the client) by the completion date set out in the contract. They are often calculated on a daily or weekly rate.	+	= What are liquidated damages? =

−	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~~. 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.	+	Contracts generally include a clause making provision for the contractor to pay liquidated damages (LD, sometimes referred to as liquidated and ascertained damages - LADs) to the client in the event that the terms of the contract are breached. In building contracts, liquidated damages usually relate to the contractor failing to achieve practical completion (i.e. completing the works so they can handover the site to the client) by the completion date set out in the contract. They are often calculated on a daily or weekly rate.
		+
		+	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 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.
		+
		+	= What are unliquidated damages? =

	If the contract prevents the client claiming liquidated damages, or if actual losses are significantly different to those that were estimated at the time the contract was entered into, then the client may pursue a claim for unliquidated (i.e. actual) damages through the courts. Unliquidated damages are damages, the exact amount of which has not been pre-agreed, and are typically determined by the courts.		If the contract prevents the client claiming liquidated damages, or if actual losses are significantly different to those that were estimated at the time the contract was entered into, then the client may pursue a claim for unliquidated (i.e. actual) damages through the courts. Unliquidated damages are damages, the exact amount of which has not been pre-agreed, and are typically determined by the courts.

	For more information, see Unliquidated damages.		For more information, see Unliquidated damages.
		+
		+	= What can liquidated damages include? =

	As liquidated damages are not a penalty, they must have been based on a genuine calculation of damages when they were set. If they are not genuine, they may be considered a penalty by the courts and so will be unenforceable (see [[Dunlop_Pneumatic_Tyre_Co_Ltd_v_New_Garage_and_Motor_Co_Ltd\|Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd]]), although this is unlikely as the courts are very reluctant to interfere in contractual agreements negotiated freely by two commercial parties of similar standing.		As liquidated damages are not a penalty, they must have been based on a genuine calculation of damages when they were set. If they are not genuine, they may be considered a penalty by the courts and so will be unenforceable (see [[Dunlop_Pneumatic_Tyre_Co_Ltd_v_New_Garage_and_Motor_Co_Ltd\|Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd]]), although this is unlikely as the courts are very reluctant to interfere in contractual agreements negotiated freely by two commercial parties of similar standing.

−	~~Calculations~~ might include~~, amongst other things~~:	+	Liquidated damages might include:

−	* Loss of rent	+	* Loss of rent.
−	* Loss of income	+	* Loss of income.
−	* Fees	+	* Fees.
	* Storage costs.		* Storage costs.
	* Rental costs.		* Rental costs.
−	* ~~Fees and fines~~ imposed by third parties.	+	* Fines imposed by third parties.
−	* ~~Finance~~ costs.	+	* Financing costs.

−	There be a causal link between all the losses the contract foresees ~~are likely to be suffered~~, and the breach of contract, i.e. the damages flow naturally from the delay and must not be 'remote'. The principle of [[Remoteness\|'remoteness']] is established in the case of Hadley v Baxendale in 1854.	+	There must be a causal link between all the losses the contract foresees, and the breach of contract, i.e. the damages must flow naturally from the delay and must not be 'remote'. The principle of [[Remoteness\|'remoteness']] is established in the case of Hadley v Baxendale in 1854.

−	~~Liquidated damages can be beneficial for~~ the ~~client, as the remove their obligation~~ to ~~prove actual losses in~~ the ~~event of delay occurring. They can also be beneficial~~ to ~~the contractor as they limit their liability to a known amount in the event of delay.~~	+	= What happens if the parties to the contract do not want to allow liquidated damages? =

−	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. Instead, they should make clear that unliquidated damages apply, or delete the clause for liquidated damages.	+	Liquidated damages can be beneficial for the client, as they remove their obligation to prove actual losses in the event of delay occurring. They can also be beneficial to the contractor as they limit their liability to a known amount in the event of delay. However, in some circumstances, the parties to the contract may 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. Instead, they should make clear that unliquidated damages apply, or delete the clause for liquidated damages.

−	= ~~Extension~~ of time =	+	= The effect of an extension of time on liquidated damages =

−	If the project is delayed by an event that impacts on the completion date, but is not the fault of the contractor, then this may constitute a 'relevant event' for which the contractor may be granted an extension of time (i.e. the completion date in the contract is adjusted). This can have the effect of relieving the contractor from a claim of liquidated damages.	+	If the project is delayed by an event that impacts on the completion date, but is not the fault of the contractor, then this may constitute a 'relevant event' for which the contractor may be granted an extension of time (i.e. the completion date in the contract is adjusted). This can have the effect of relieving the contractor from a claim for liquidated damages.

	However, mechanisms allowing extensions of time are not simply for the contractor's benefit. 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. With no enforceable completion date, the client would lose any ability to claim liquidated damages for other delays that are the contractor's fault.		However, mechanisms allowing extensions of time are not simply for the contractor's benefit. 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. With no enforceable completion date, the client would lose any ability to claim liquidated damages for other delays that are the contractor's fault.
Line 43:		Line 49:
	For more information, see Octoesse LLP v Trak Special Projects Ltd.		For more information, see Octoesse LLP v Trak Special Projects Ltd.

−	= ~~Partial~~ possession and sectional completion =	+	= The effect of partial possession and sectional completion on liquidated damages =

	As construction nears completion, there can be considerable pressure to allow the client or tenants to take possession of part of a building or site, even if the works as a whole are ongoing or there are defects that have not been rectified. This can be pre-programmed as part of the works through a contractual requirement for sectional completion, but in the absence of such a provision many contracts offer the more open-ended option of partial possession.		As construction nears completion, there can be considerable pressure to allow the client or tenants to take possession of part of a building or site, even if the works as a whole are ongoing or there are defects that have not been rectified. This can be pre-programmed as part of the works through a contractual requirement for sectional completion, but in the absence of such a provision many contracts offer the more open-ended option of partial possession.

Designing Buildings at 08:22, 4 August 2022

2022-08-04T08:22:05Z

← Older revision		Revision as of 08:22, 4 August 2022
Line 60:		Line 60:
	NB: On construction management projects, trade contracts (such as the Joint Contracts Tribunal (JCT) CM/TC 2011) may not include provisions for liquidated damages, instead the trade contractor indemnifies the client's direct loss and/or expense for lateness.		NB: On construction management projects, trade contracts (such as the Joint Contracts Tribunal (JCT) CM/TC 2011) may not include provisions for liquidated damages, instead the trade contractor indemnifies the client's direct loss and/or expense for lateness.

−	~~[[File:DBWCTA C link LADS ebook.png\|link=https://hubs.la/H0Nmbq10]]~~	+	= Related articles on Designing Buildings =
−		+
−	= Related articles on Designing Buildings ~~Wiki~~ =	+

	* Reasonable time.		* Reasonable time.

Designing Buildings at 10:28, 21 May 2021

2021-05-21T10:28:37Z

← Older revision		Revision as of 10:28, 21 May 2021
Line 59:		Line 59:
	-----		-----
	NB: On construction management projects, trade contracts (such as the Joint Contracts Tribunal (JCT) CM/TC 2011) may not include provisions for liquidated damages, instead the trade contractor indemnifies the client's direct loss and/or expense for lateness.		NB: On construction management projects, trade contracts (such as the Joint Contracts Tribunal (JCT) CM/TC 2011) may not include provisions for liquidated damages, instead the trade contractor indemnifies the client's direct loss and/or expense for lateness.
		+
		+	[[File:DBWCTA C link LADS ebook.png\|link=https://hubs.la/H0Nmbq10]]

	= Related articles on Designing Buildings Wiki =		= Related articles on Designing Buildings Wiki =

Designing Buildings at 07:59, 1 October 2020

2020-10-01T07:59:03Z

← Older revision		Revision as of 07:59, 1 October 2020
Line 59:		Line 59:
	-----		-----
	NB: On construction management projects, trade contracts (such as the Joint Contracts Tribunal (JCT) CM/TC 2011) may not include provisions for liquidated damages, instead the trade contractor indemnifies the client's direct loss and/or expense for lateness.		NB: On construction management projects, trade contracts (such as the Joint Contracts Tribunal (JCT) CM/TC 2011) may not include provisions for liquidated damages, instead the trade contractor indemnifies the client's direct loss and/or expense for lateness.
−
−	~~[[File:C_link_loss_and_expense_button.png\|link=http://zpr.io/gxVVH]]~~

	= Related articles on Designing Buildings Wiki =		= Related articles on Designing Buildings Wiki =

Designing Buildings at 05:55, 27 August 2020

2020-08-27T05:55:23Z

← Older revision		Revision as of 05:55, 27 August 2020
Line 97:		Line 97:
	* Boyes Turner: Liquidated damages clauses in construction contracts.		* Boyes Turner: Liquidated damages clauses in construction contracts.

−	[[Category:Taxation]] [[Category:Project_activities]] [[Category:Construction_management]]	+	[[Category:DCN_Definition]] [[Category:DCN_Guidance]] [[Category:Taxation]] [[Category:Project_activities]] [[Category:Construction_management]]

Designing Buildings: Reverted edits by 86.167.141.137 (talk) to last revision by 217.41.240.194

2020-01-05T00:54:19Z

Reverted edits by 86.167.141.137 (talk) to last revision by 217.41.240.194

Show changes

86.167.141.137 at 22:29, 4 January 2020

2020-01-04T22:29:34Z

Show changes

86.167.141.137 at 22:28, 4 January 2020

2020-01-04T22:28:52Z

← Older revision		Revision as of 22:28, 4 January 2020
Line 1:		Line 1:
−	= ~~Introduction~~ =	+	= BADLION KLIENT =

	Contracts generally include a clause making provision for the contractor to pay liquidated damages (LD, sometimes referred to as liquidated and ascertained damages - LADs) to the client in the event that the contract is breached. In building contracts, liquidated damages usually relate to the contractor failing to achieve practical completion (i.e. completing the works so they can handover the site to the client) by the completion date set out in the contract. They are often calculated on a daily or weekly rate.		Contracts generally include a clause making provision for the contractor to pay liquidated damages (LD, sometimes referred to as liquidated and ascertained damages - LADs) to the client in the event that the contract is breached. In building contracts, liquidated damages usually relate to the contractor failing to achieve practical completion (i.e. completing the works so they can handover the site to the client) by the completion date set out in the contract. They are often calculated on a daily or weekly rate.

217.41.240.194 at 12:57, 2 July 2019

2019-07-02T12:57:49Z

← Older revision		Revision as of 12:57, 2 July 2019
Line 9:		Line 9:
	For more information, see Unliquidated damages.		For more information, see Unliquidated damages.

−	As liquidated damages are not a penalty, they must have been based on a genuine calculation of damages when they were set. If they are not genuine, they may be considered a penalty by the courts and so will be unenforceable (see [[Dunlop_Pneumatic_Tyre_Co_Ltd_v_New_Garage_and_Motor_Co_Ltd\|Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd]]).	+	As liquidated damages are not a penalty, they must have been based on a genuine calculation of damages when they were set. If they are not genuine, they may be considered a penalty by the courts and so will be unenforceable (see [[Dunlop_Pneumatic_Tyre_Co_Ltd_v_New_Garage_and_Motor_Co_Ltd\|Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd]]), although this is unlikely as the courts are very reluctant to interfere in contractual agreements negotiated freely by two commercial parties of similar standing.

	Calculations might include, amongst other things:		Calculations might include, amongst other things: