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 prove:
- 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 contractors).
Clearly, then, without enforceable LDs, what could be a simple delay claim can become very complex.
This is general information only, and does not constitute specific legal advice. If you would like further information in relation to this matter or other legal matters please contact our office on Freecall 1800 609 945 or email us now.