Liquidated damages (LDs) give powerful relief for delayed
construction works. But the right to LDs can be quite vulnerable
because of the prevention principle and the doctrine of penalties.
Principals should therefore take care to protect their LDs
entitlements and contractors should do what they can to avoid an
LDs liability. The following case scenario shows why.
Say construction works have been delayed for a period of 8 weeks
and the time to complete has only been extended for three weeks.
The head contractor did not cause any part of the remaining five
weeks' delay and the LDs rate of $1,500 per working day is not
so high as to constitute a penalty. So it is enforceable.
In this case, the head contractor's entitlement is simple:
25 working days' delay times $1,500 equals $37,500.
But what if some part of the five weeks' delay was caused by
the head contractor or the rate of LDs was void as a penalty? In
that case, LDs are not claimable and things are about to become
very difficult for the head contractor which will then need to
that the contractor's delays have unavoidably delayed the
head works (which raises complex questions of critical versus
non-critical path delays and the head contractor's duties to re
sequence/accelerate/ take other steps in mitigation); and
that no other subcontractor at any point in the course of head
works caused any critical path delay in breach of the timing
provisions in its own subcontract (which may require complex delay
analysis by experts to tease out "as built" versus
"as scheduled" progress, assess criticality of delay and
consider how much of the delay could have been avoided by the head
contractor through re-sequencing, acceleration of head works,
etc.); or alternatively,
that there were concurrent causes of delay and what proportion
of the overall delay to head works was attributable to the
contractor's delay (requiring complex analysis of the critical
path impact of delays at various points in the program, what might
have been done to mitigate overall delay, how far it could have
been mitigated, which subcontractors' liabilities would thereby
have notionally been mitigated and to what extent, and how, any
residual delay should be apportioned between concurrently liable
Clearly, then, without enforceable LDs, what could be a simple
delay claim can become very complex.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Warranties can be risk-shifting mechanisms when the party giving the warranty is not the party at fault for the defect.
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