Liquidated damages are a common feature in construction disputes. This is because they offer a way for construction professionals to protect themselves from the risks of delay and other problems. Whether you’re a construction contractor, subcontractor, or owner, it’s important to understand these damages and how they can impact your construction business.
What are liquidated damages?
Liquidated damages are a contractual provision that sets a specific amount of money that’s paid in the event of a breach. Per construction law, this amount is typically intended to compensate the non-breaching party for any losses incurred as a result of the breach. In construction contracts, liquidated damages are typically used to cover the costs of delays, schedule disruptions and other problems that can occur during a construction project.
How are liquidated damages calculated?
Liquidated damages are typically calculated as a certain amount of money per day or week of delay. For example, if a construction contract has a clause that stipulates liquidated damages of $500 per day for delays, then the contractor would owe the owner $500 for each day that the project gets delayed. In some cases, liquidated damages can be a percentage of the total contract value. For example, if a construction contract is worth $100,000 and has a clause that stipulates liquidated damages of 20%, then the contractor would owe the owner $20,000 for each day that the project is delayed.
How can you avoid liquidated damages?
There are a few ways that you can avoid liquidated damages. One way is to negotiate a lower rate with the other party. Another way is to include a clause in the contract that allows for delays due to certain events, such as weather or construction problems. Finally, you can purchase insurance that will cover the costs of liquidated damages.
Liquidated damages can be a helpful tool for construction professionals, but it’s important to understand how they work before you agree to them. By knowing the ins and outs of liquidated damages, you can protect your construction business from the risks of delays and other problems.