In Construction history, there are hardly projects which were completed on time. Still, we mention these Liquidated Damages in the contracts. Why we mention these theoritical elements if we don't follow it?
1 reply
Apr 2, 2020
It's extremely common for liquidated damages clauses to be present in construction contracts - particularly on larger jobs, public works, and complex projects. Specifically, liquidated damages clauses are often tied to project delays - i.e. A contractor will have to pay $X amount for every day the project is late. But, as you mention above, it's exceedingly common for construction projects to take longer than the original time table set under the contract. And, these liquidated damages clauses aren't always enforced.
As for why liquidated damages clauses are still included even if they aren't often exercised - ultimately, reserving a right to liquidated damages provides additional protection. Even if the right to liquidated damages isn't commonly exercised it's still another tool that can be used to force their a contractor into doing what they can to complete the project on time. It can be used as leverage. Plus, if the project really does get out of hand, then the contractual right would still be there to go ahead and demand the liquidated damages.
From the other point of view, as for why contractors include it: Often, sophisticated owners and public agencies will require liquidated damages for delays. Or, a contractor may use that to bolster a bid by showing good faith and confidence that they can finish the project in time. Though, because construction jobs rarely finish on time, it's usually a good idea to avoid liquidated damages for delays if possible.
For more information on delays:
- Construction Delay Claims: Types, Claims, and Defenses- Types of Construction Project Delays – Inexcusable Delays vs. Excusable Delays- Construction Delays: Common Causes for Delay and How to Minimize the Fallout