In this article, Jan Rzedzian, construction lawyer at Hay & Kilner, provides practical tips for contractors and employers when drafting or negotiating clauses relating to the provision of liquidated damages in a building contract.
Provision for liquidated damages is commonly provided as an option in the standard form contracts including the two most regularly used: JCT and NEC.
Whilst the option for inclusion of liquidated damages is there for users of most of the standard form contracts, parties must take care when doing so. If, for example, the liquidated damages entry is not completed and no figure is stated then liquidated damages will not apply and the Employer can claim actual loss for late completion. On the contrary, where the relevant clause is completed with the word ‘nil’ or similar wording then the effect is that the parties had agreed that there should be no damages at all for delayed completion. In other words, not only could the Employer not claim for liquidated damages but he could not claim for actual loss either. One seemingly innocuous word could have far-reaching and potentially very costly repercussions for the parties.
Practical Tips for Employers
Practical Tips for Contractors
Whilst it may initially seem that liquidated damages are essentially an Employer’s remedy, there are strong arguments that they can benefit both parties. The benefits to the Employer are clear as the Employer can be certain to recover a fixed sum as soon as the completion date has been missed by a defaulting Contractor and there is no requirement to prove actual loss.
What may be less obvious is that liquidated damages can also have their advantages for Contractors. Typically, liquidated damages provide the Employer with an exhaustive remedy for any delay to completion and, as such, the Contractor will have the benefit of knowing at the outset of the project the precise figure it will have to pay if it cannot complete the works by the completion date. Indeed, a savvy Contractor will seek to negotiate the rate of liquidated damages and then factor the risk of late completion in its tender.
For further information, please contact Jan Rzedzian, Associate Solicitor in the Construction Team at Hay & Kilner
Call: 0191 232 8345