Liquidated Damages in a Construction Contract

Hello and welcome to this week's Blog, which will focus on when an employer can claim liquidated damages from a contractor. Liquidated Damages are an agreed regular sum paid by a contractor to an employer who is delayed and missed the contractual completion date.

For a Liquidated damages clause to be valid, it must state a specific figure which is payable for every period the contractor is late, whether daily, weekly or monthly. The damages must be a realistic estimate of what damages the employer may suffer due to late completion. Where Liquidated damages are viewed as too high or as a means to punish the contractor for late completion, it can be difficult for the employer to enforce this clause. The benefit to an employer of a liquidated damages clause is that the payment can be recovered without needing the employer to prove their loss due to delayed completion. Suppose the contract contains no liquidated damages clause. In that case, the employer must prove both the value of the loss and how this is linked to the contractor's delay; otherwise, damages are not recoverable; look out for a future blog which covers delay damages in a construction contract.

For an employer to claim liquidated damages due to a delay, the employer must fulfil specific obligations. Once a contractual completion date, be it partial or total, the employer must issue the contractor with a notice of no completion. In such circumstances where the completion date is changed after the notice has been given to the contractor, a new notice must be issued even if the contractor remains late to the completion date. After that, and before the final payment date, the employer must notify the contractor that they may utilise the liquidated damages clause within the contract. As the date for final payment approaches and no later than five days before the date for final payment, the employer must issue the contractor with a further notice which requests payment of the liquidated damages or the employer's intention to deduct the sum due from the final amount payable to the contractor. Should the circumstances arise that the adjudicator is deciding the dispute, and this may lead to additional time for the contractor to complete, which means the sum of liquidated damages is different, or they are not due at all, then the employer must repay the liquidated damages.

When faced with liquidated damages, it can be daunting for a contractor and feel like you have nowhere to turn. Likewise, an employer may feel guilty about applying liquidated damages or the steps required to ensure liquidated damages are paid whilst managing the relationship with the contractor until the end of the contract. If you wish to discuss how Velocity Dispute Management can support with liquidated damages you or discuss this Blog's content, please get in touch with admin@velocitydisputemanagemet.co.uk or book a strategic review meeting where one of our consultants will review your situation and create an action plan to utilise your rights in law to resolve the problem.

The content of this Blog is intended for information only and is not an alternative to legal advice. Velocity Dispute Management accepts no responsibility for the actions of another party as a result of this Blog or the content of any third-party source to which this Blog refers.