Notice Of Claims For Daily Penalties

A recent arbitration award confirms the well-established rule that an employer forfeits its claim for daily penalties if it fails to give notice within reasonable time. At the same time, the award raises the question of how early the employer must react to an anticipated delay under the General Conditions for Building and Construction Works and Supplies (AB18).

Daily penalties constitute key contractual remedies for delays attributable to the contractor. In particular, daily penalties enable the employer to recover without proving a particular financial loss and may serve as an incentive for the contractor to accelerate performance. However, entitlement to daily penalties is conditional upon compliance with both the agreement and the subsequent formal requirements.

Section 40(4) of AB18 expressly stipulates the conditions under which any failure to meet a deadline will trigger daily penalties. The facts that the deadline triggering daily penalties has been exceeded and that the contractor is not entitled to an extension of time are therefore not, in themselves, sufficient. The employer must also document the failure to meet the deadline as it occurs and give reasonable notice of its claim for daily penalties. This is evident from the decision reported in T:BB 2026.892, in which a main contractor was only partially successful in its claim for an extension of time. However, the employer was nevertheless unable to claim daily penalties for the remaining period of delay because notice had not been given in a timely manner.

The conditions for daily penalties under AB18

Section 40(4) of AB18

Under section 40(4) of AB18, any failure to meet a deadline gives rise to a claim for daily penalties only if three conditions are met. Firstly, both the deadline and the daily penalty must be clearly stated in the parties’ agreement. Secondly, any failure to meet the deadline, as amended by any extension of time, must be recorded on an ongoing basis. Thirdly, within a reasonable time after becoming aware that the deadline will be exceeded, the employer must notify the contractor that daily penalties will be claimed and specify the date from which they will be claimed.

The notice must make clear to the contractor that the employer will claim daily penalties and the date from which they will accrue. The explanatory notes to section 40(4) of AB18 state that, according to previous practice, the employer was required to follow up on an earlier notice of daily penalties once the deadline triggering daily penalties had been exceeded. In other words, the employer had to inform the contractor that daily penalties were now payable. AB18 does not, however, provide for any such additional requirement. It remains essential, however, that notice be given within a reasonable time after the employer becomes aware of the anticipated failure to meet the deadline.

T:BB 2025.376 and T:BB 2025.741

The requirements for claiming daily penalties have already been frequently addressed in recent case law. In T:BB 2025.376, it appeared from the minutes of the site meetings that the turnkey contractor’s works were delayed, gave rise to liability and were subject to penalties. By contrast, the minutes did not expressly state that the employer was asserting a claim for daily penalties, nor did they specify the date from which such penalties would accrue. The notice was therefore held to be inadequate, and the employer’s claim for daily penalties in the amount of DKK 9,695,000 was rejected.

In T:BB 2025.741, the employer submitted that the parties had entered into an oral agreement designating 1 April 2023 as the revised date triggering payment of daily penalties. The main contractor disputed this and, as the agreement was neither put down in writing nor recorded in any minutes, and the parties disagreed as to its contents, the arbitration tribunal found that the agreement did not provide a proper basis for a claim for daily penalties. The main contractor was also entitled to an extension of time for part of the period after 1 April 2023, without the employer having recorded on an ongoing basis that the deadline – as amended by the extension – had been exceeded. Taken together, the two decisions indicate that the employer must ensure a clear contractual basis for the deadline triggering daily penalties, continuously keep a record of any delays and clearly inform the contractor that daily penalties will be claimed and the date from which they accrue.

The new arbitration award

T:BB 2026.892

The case involved a main contract covering roof replacement and works to inspect the façades of a property. During the performance of the works, the employer and the main contractor disagreed on matters including delay, extension of time, extra works and payment for the extended operation of the site.

The works were completed and handed over considerably later than the agreed completion date, and the employer therefore claimed daily penalties. In response, the main contractor argued that the delay resulted from circumstances entitling it to an extension of time and also claimed payment for the extended construction period.

The arbitration tribunal found that the conditions laid down in section 40(4)(b) and (c) of AB18 had not been met, and that the claim for daily penalties had not been notified in a timely manner. The employer was therefore not entitled to claim daily penalties. This was the case even though the main contractor was granted an extension of time for only part of the delay. The arbitration tribunal also found that the main contractor had contributed to the delay by failing to provide adequate staffing and construction management.

The award highlights that the employer’s right to daily penalties is not determined solely by the contractor’s responsibility for the delay. The formal requirements of ongoing record-keeping and timely notification are significant in their own right and may cause the claim for daily penalties to fail, even where the contractor is not entitled to an extension of time for the entire period of delay.

The employer’s obligation to monitor progress against the time schedule

The point at which the employer learns that a deadline subject to daily penalties is likely to be exceeded should be assessed in the context of the other provisions of AB18 on time management. Under section 14(1) of AB18, the parties are required to monitor on an ongoing basis whether the work and time schedules may be adhered to. If it seems likely that the schedules will not be adhered to, they must be updated stating to what extent extension of time is requested or accepted, and whether the delay concerns a deadline subject to daily penalties.

Both parties are subject to the obligation, which applies to all the schedules. According to the explanatory notes to AB18, the updates are intended to give the parties an ongoing and improved overview of the progress of the works, any delays and any claims that may arise as a result of the delay. Updating the time schedule does not in itself amend the agreed interim milestones or completion dates, but is to make the expected progress visible.

Under section 31(2)(b) of AB18, updates to the work and time schedules must be reviewed at every site meeting. Any update identified as necessary at the meeting must be initiated or implemented. Under section 31(2)(c), the parties must also record any lost working days, why they occurred and whether they are already accounted for in the time schedules. The aim is for the parties to review compliance with the time schedule at least at each site meeting, enabling them to take timely action.

The interaction between sections 14, 31 and 40 of AB18 is likely to be relevant to determining when the employer should be taken to have become aware of the anticipated failure to meet the deadline. Where the employer has an independent duty to monitor progress on an ongoing basis and consider the time schedule at each site meeting, the updated time schedules and minutes of site meetings may show that the employer had the requisite knowledge of the impending delay at an early stage. The provisions of AB18 may therefore be expected to impose stricter requirements as to the duty of care previously expected on the part of the employer under the General Conditions for the Provision of Works and Supplies within Building and Engineering (AB92).

Our perspective

According to T:BB 2026.892, the fact that a deadline triggering daily penalties has been exceeded does not, in itself, justify a claim for daily penalties. The main contractor was granted an extension of time until 27 January 2023 only, but failed to meet that deadline. The employer nevertheless failed in its claim for daily penalties due to the fact that the requirements of ongoing record-keeping and timely notification under section 40(4)(b) and (c) of AB18 had not been met.

The employer should therefore act before the deadline subject to daily penalties expires if updated time schedules or discussions at site meetings indicate at an earlier stage that the deadline is unlikely to be met. In addition, the employer should not wait for a final determination of the contractor’s claim for an extension of time or a final calculation of the claim for daily penalty. Although avoiding the escalation of conflict often caused by a notice of a claim for daily penalties may be commercially sensible, delaying the notice of the claim may mean that the employer’s claim will be rejected at a later date.

For evidential purposes, a notice of a claim for daily penalty should always be given in writing. It must be clearly stated in the notice that the employer is claiming daily penalties and from what specific date such penalties are claimed. The notice may be given in a separate communication or at a site meeting, but in the latter case it must be clearly represented in the minutes. T:BB 2025.376 confirms that the employer must expressly claim daily penalties and state the date from which they accrue. It is not sufficient for the minutes to describe the work as delayed and subject to a penalty, or for the employer to regard the delay as giving rise to liability.

The employer must also ensure that the allocation of responsibilities is clear between the employer, the construction management team and any other consultants. It should be clear who is responsible for monitoring the time schedule, recording any failure to meet deadlines and escalating matters that may render notice of daily penalties necessary. In accordance with the general rules, the construction management team must give notice of daily penalties and manage the time schedule of the construction works. However, unclear allocation of responsibility often means that otherwise legitimate claims for daily penalties are lost.

T:BB 2026.892 should therefore be seen in the context of T:BB 2025.376 and T:BB 2025.741. It is a further reminder that daily penalties are not merely a matter of the wording of the contract, but also of active time management and ongoing record-keeping. Until further case law is available on the interaction between sections 14, 31 and 40 of AB18, the employer must act immediately when sufficiently reliable grounds exist for expecting that a deadline subject to daily penalties cannot be met. This applies regardless of how the employer becomes aware of the risk of delay.