However, if the project is substantially completed, meaning the owner can make use of the project beneficially, then they may not be able to assess liquidated damages. A court could even grant a contractor an extension before the damages start accruing if the reason for the delay is deemed excusable. Liquidated damages are a common element in Canadian construction contracts and serve as a useful risk allocation mechanism. Liquidated Damages: A Primer By Greg Murdoch. For contractors perhaps more than most professionals, being under the gun is pretty much standard operating procedure. The case of Andrews v Australian and New Zealand Banking Group Limited [2012] HCA 30 also has profound implications for this area of construction law. Liquidated damages in construction contracts The amounts to be paid can be significant and it is therefore not surprising that their validity is often disputed by the paying party; one of the most common grounds for dispute is that the liquidated damages clause is not effective as it amounts to a ‘penalty’. Instead, the amount of damages must be calculated on what the owner anticipated they would lose if the project was finished late, and these calculations must be reasonable. His work has appeared in Men’s Health, Wired, and the New York Times. In each case, enforcing a liquidated damages clause and factors specific to the project may lead to nuances in the drafting of the liquidated damages clause. Introduction to Construction Contracts and Liquidated Damages, What is the Meaning of Liquidated Damages. Depending on how specific the contract is, owners could require key project milestones be completed by specific dates. If challenged in court, generally the owner must prove how they arrived at the figure they included in the liquidated damages provision in the contract. The Massachusetts Highway Department (MHD) estimated its liquidated damages using “historical data adjusted for probability of impact as well as estimates of management and other costs.” This method is applied on a case-by-case basis as opposed to a blanketly like the Boston Harbor cleanup project. On top of everything else, contracts between owners and contractors frequently contain a liquidated damages clause holding the contractor financially liable if a contract is breached. These are … Liquidated damages are funds covering the costs for each day the project continues past the agreed-upon date of completion. This is, of course, contingent on the contract itself being airtight, fair, and unlikely to require a legal challenge to settle. Even if such a clause is mutually agreed upon in writing before the first nail is hammered, certain specific conditions must be met for the provision to be enforceable. Those findings must adhere to the above mentioned requirements or a judge could invalidate the liquidated damages clause. A court could even grant a contractor an extension before the damages start accruing if the reason for the delay is deemed excusable. Want High Quality, Transparent, and Affordable Legal Services? However, despite their utility, these seemingly straightforward provisions can be problematic for legal practitioners, as a result of the Canadian common law having diverged from the traditional doctrine over the past several decades. It is … Anybody wants to stay out of court if it can be avoided, and designing liquidated damages provisions in accordance with what is enforceable and fair is the best way to do that. 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