Liquidated damage clauses are common in many construction contracts. Typically, in construction contracts, LDs most often stipulate the amount a contractor must pay (or have deducted from payments it is owed) in the event the contractor fails to meet certain agreed upon dates. For owners, LDs are intended to lessen the burden of trying to prove the amount of damage sustained by a delay. For contractors, LDs are an incentive to complete the work as agreed. In theory, when a contractor is late the LD clause provides a black and white amount that compensates the owner for the delay. In practice it is not that simple.
Construction projects (and contracts) are never as simple as they look. Late delivery is rarely caused because a contractor simply decides not to finish on time. Instead, the delay is usually caused by the occurrence of some unanticipated event or events. If those events are the fault of the owner, contractors may be able to avoid some or all of the LDs. Alternatively, if the delay is the result of someone or something out of the control of the contractor, but not the owner, contractors may still have arguments which support lessening or even eliminating the LDs altogether. Finally, sometimes the LD clause itself is simply unenforceable as a matter of law—because of either a statute prohibiting LDs or precedent established by courts in that jurisdiction. Therefore, just because the contract says an owner is entitled to LDs if the contractor is late does not preclude the contractor from avoiding some or all of the LDs if the contractor is late.
Understanding the rules relating to LDs is important for many reasons. First, knowing the circumstances that lead to a valid defense against the assessment of LDs informs project participants of what documentation needs to be carefully monitored during construction. Second, the knowledge assists owners, engineers, and contractors negotiate terms that will match the intent of the parties and that will be enforced if the project turns out to not go as planned. Finally, sound project management requires the professionals involved understand the risks that exist. Ultimately, understanding the rules relating to enforcing an LD clause is critical whether you represent an owner, contractor or designer.
Join this session by expert speaker Zach Jones and get detailed information on liquidated damages (LDs) in construction contracts and learn when and why LDs are used in construction contracts.
Who should attend?
Zach Jones is a construction attorney in Louisville, Kentucky, with the firm of Stites & Harbison who represents contractors across the country and around the world. Prior to becoming an attorney, Zach was a project engineer and estimator for W.L. Hailey & Company (now Layne, ENR Top 400 #53). Havin... More info