When it comes to construction projects, time really is money. Projects that run over schedule can cause significant financial losses for the businesses involved. To manage this risk, most construction contracts include a clause dealing with liquidated damages. But what are liquidated damages in construction? How do they differ from general damages? And what happens when parties disagree about their enforcement or validity?
Here, our construction dispute solicitors explain what liquidated damages in construction are, and what happens when they become a point of contention.
For a confidential free discussion, call us today on 01908 414990, alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.
Understanding Liquidated Damages
Liquidated damages are a pre-agreed financial amount that one party must pay to the other if a project is delayed beyond the completion date set out in the contract. The paying party is usually the contractor, and the receiving party is usually the employer.
In simple terms, liquidated damages in construction are a convenient way for the parties involved in a construction project to set out what a delay will cost before any work begins. Rather than having to prove actual financial loss later, the party affected by the delay can claim the pre-agreed sum per day, week, or month of delay.
For example, if the parties agree on liquidated damages of £5,000 per week of delay, and the project finishes four weeks late, the employer has a contractual right to claim £20,000 in damages.
Liquidated damages in construction provide both sides of the contract with some much-needed certainty. The employer knows what compensation they will receive in the event of delays, and the contractor knows their potential exposure for falling behind schedule.
Crucially, for a liquidated damages clause to be legally enforceable, the amount must be a genuine pre-estimate of the employer’s loss, and it must not be an arbitrary or excessive figure. If the court deems the amount to be disproportionate or punitive, the clause may be unenforceable, and the employer would instead have to prove the actual losses they sustained as a result of the delay.
Common disputes caused by Liquidated Damages Clauses
Even when both parties have agreed to the inclusion of a liquidated damages clause, disputes about liquidated damages are common in the construction industry. Some examples of the types of issues that can give rise to a dispute include the following:
- Responsibility for the delay
If the contractor claims that the delay was caused by factors outside of their control, such as supply issues or adverse weather conditions, they may dispute an employer’s claim for liquidated damages.
- Invalid or unenforceable clauses
Issues with the drafting of the liquidated damages clause itself may lead to disputes between the parties. For example, if the clause does not specify a completion date or if the damages amount is deemed excessive, the contractor may have cause to dispute its enforceability.
- Termination or partial completion
Disputes sometimes arise about the enforceability of a liquidated damages clause after a contract has been terminated or where only part of the project was delayed.
Liquidated damages disputes can be complex and technical. They usually required the input of specialist construction dispute solicitors like ours to ensure a swift and fair resolution.
The role of Construction Dispute Solicitors
When a dispute over liquidated damages arises, the involvement of an expert construction dispute solicitor can be the difference between becoming embroiled in a costly legal battle and securing a swift, practical resolution to the issue.
At Altion Law, our construction disputes solicitors specialise in assisting businesses in the construction industry to resolve their liquidated damages disputes quickly and cost-effectively. Just some of the tasks they routinely undertake in connection with such disputes include the following:
- Interpreting contract terms
If your construction project is delayed, our construction disputes solicitors will assess whether the liquidated damages clause applies to the circumstances and advise you on the correct procedures for making or defending a claim under it.
- Enforcing contract terms
Our construction disputes solicitors will assess the relevant liquidated damages clause and advise on its enforceability and your rights or obligations under it.
- Negotiation and settlement
Not every liquidated damages dispute needs to reach adjudication or court. Our skilled construction disputes solicitors frequently negotiate excellent settlements on behalf of our clients that save them time and money and help to preserve important commercial relationships.
- Representation in legal proceedings
If your liquidated damages dispute cannot be resolved other than through formal legal proceedings, our construction disputes solicitors will prepare the most robust possible case to present to the adjudicator, arbitrator, or judge.
Whether you are an employer seeking to recover liquidated damages or a contractor disputing a claim, our construction disputes solicitors are on hand to help. We offer a balance of technical legal understanding and commercial insight to secure the best possible outcome for your business.
For a confidential free discussion, call us today on 01908 414990, alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.
