5/14/2020 What are Liquidated Damages in Construction Contracts - Sihela Consultants

+65 6522 6164 [email protected]

What are Liquidated Damages in Search …

Construction Contracts
Posted by Amila Gamage Contract Administration LD, Liquidated Damages
Posted on March 27, 2020

I am Amila Gamage
,the founder and
owner of Sihela
In contract administration there are certain clauses that consultants, Consultants who is an
engineers,quantity surveyors,project managers and contractors should experienced
know.This doesn’t mean that it is enough knowing the technical term.It is Contracts
important to understand the how to apply liquidated damages in Engineer/Trainer/Quan
construction contracts and how to prevent LD imposed on your project. Surveyor.I provide
consultation,quantity
Liquidated Damages or LD is another important term discussed in surveying services
construction contracts. Sometimes contractors misunderstand liquidated and workshops for
damages as a penalty for not completing the construction project within construction
companies.
https://sihelaconsultants.com/liquidated-damages-in-construction-contracts/ 1/10
5/14/2020 What are Liquidated Damages in Construction Contracts - Sihela Consultants

the stipulated time fame. However liquidated damages are not a penalty FOLLOW
imposed on contractor. FREE
COURSE
Have you ever experienced liquidated damages imposed on your projects?

In this post I try to cover some of the details related to Liquidated

damages including scenario to deduct liquidated damages from the
contractor, reasons to deduct liquidated damages and employer’s rights
for damages when the contractor does not complete the project as Learn
mentioned in the contract agreement. How to
be
Let’s discuss! successf
ul in your
construct
ion claim
process
Enter details to
follow this FREE
course.

Name

Email

Subscribe

What are Liquidated RECENT

POSTS

Damages in Construction
Construction
Contracts? Disputes : What
are the
Liquidated Damages are pre-determined damages mentioned in the
Common
construction contract agreement. Both parties to the contract agree to
Causes
this amount as the amount to recover if the contract is breached. Usually
Liquidated Damages are recovered by the Employer if the contractor fails What are
to substantially complete the work within the stipulated time for Liquidated
completion. Damages in
https://sihelaconsultants.com/liquidated-damages-in-construction-contracts/ 2/10
5/14/2020 What are Liquidated Damages in Construction Contracts - Sihela Consultants

If clarify further,Liquidated Damages are a genuine pre-estimation of the Construction

loss which can be caused due to contractor’s failure to complete the Contracts
project timely.
Impact of
COVID-19 Virus
Are Liquidated Damages on Construction
Projects
penalties? How to Prepare
Liquidated Damages are not any penalties which is imposed on an Accurate
contractors. It is a pre-determined amount to cover the possible loss Cost Estimation
that Employer has to face if the contractor doesn’t complete his work for your
within the time for completion stated in the contract. At the time of Construction
signing the agreement, both contractor and employer knows the amount Bid
of Liquidated damages if the work is not completed substantially.This
My First
amount can be per day or per week.
Teaching
Experience as a
Trainer for
Certificate in
Quantity
Surveying
Course

ARCHIVES

May 2020

March 2020

February 2020

By signing the contract agreement, contractor agrees on the amount of October 2019
Liquidated Damages that Employer can recover if the contractor fails to September 2019
deliver the project within the Time for Completion.
August 2019

Due to Liquidated Damages clause contractor knows that he has to April 2019
complete the project without delay.This is beneficial to the employer as
July 2018
he will not lose money from a dragged project.
September 2017

https://sihelaconsultants.com/liquidated-damages-in-construction-contracts/ 3/10
5/14/2020 What are Liquidated Damages in Construction Contracts - Sihela Consultants

How to determine the August 2017

amount of Liquidated CATEGORIES

Damages?
Contract
While recovering of Liquidated damages occur at the completion of work Administration
scope in full or as a phase, the amount of liquidated damages are pre-set
amounts depending on the size and nature of the project. Disputes

Events
Amount of Liquidated Damages are determined based on the possible
loss incur to the Employer if the contractor fails to complete the project Post-Contract
on time. Pre-Contract

Press Releases
Possible losses for the Employer due to a
Projects
late project
Tender Stage
Possible losses to the client include rental cost, loss of possible income if
the project completed on time, extra running costs, temporary Uncategorized
accommodation costs etc depending on the nature of the project scope. Workshops

Once these costs are identified, Liquidated Damages per day or per week
is calculated. This is the amount mentioned in any construction contract GET IN
as Liquidated Damages for the project. The amount can be per day or per TOUCH
week and it can be recovered if practical completion is not achieved for
the whole project or a phase depending on the type of contract. +65

The amount of Liquidated Damages and the recovery period of it vary contact@sihelaconsultan
from project to project (or from contract to contract)
www.sihelaconsultants.c

How to Deduct Liquidated Address

Damages
If the contractor fails to meet the practical completion by the mentioned
project completion date, Employer is entitled to recover the Liquidated
Damages from the contractor. It is necessary to understand that
Contractor shall allow the Employer to recover the liquidated

https://sihelaconsultants.com/liquidated-damages-in-construction-contracts/ 4/10
5/14/2020 What are Liquidated Damages in Construction Contracts - Sihela Consultants

damages.Also the LD amount will be calculated at the rate mentioned in

the contract agreement for the actual period of delay.

However such recovery of Liquidated damages by the employer does not

relieve the contractor from his liabilities and obligations under the
contract. Still, the contractor shall complete the project with accepted
quality as per the contract.

For example, if the liquidated damages per day is $ 2000 and if the
contractor’s substantial completion is 7 days delay then the employer is
entitled to recover $14,000 as Liquidated Damages from the contractor.
However the contractor still need to complete the project to the
satisfaction of Employer and Engineer/Architect

So far I have experience in few projects that employer recovered

liquidated damages from the contractor due to the delay in completion.
These amounts are adjusted in the Final Account.

However,as a contractor you can check the possibility of EOT claims to

avoid deduction of Liquidated Damages if you foresee any delay in
completion.

Extension of Time during

Delay period
If the delay to the contract is due to a valid reason that contractor is not
responsible, then the contractor has the right to request for Extension of
Time. (EOT Claim) According to the construction contracts, there are
several reasons that cause delay of the project and which are beyond
contractor’s control.

Some of such causes of project delay include Force Majeure, adverse

weather conditions, industrial actions, instruction for a variation,
Employer’s failure to give possession of site on time etc. If the project
delay is due to such reasons that entitle the contractor to claim Extension
of Time and if the Architect/Contract Administrator or the person
authorized approve the extension of time then such time period is added
to the total project period.
https://sihelaconsultants.com/liquidated-damages-in-construction-contracts/ 5/10
5/14/2020 What are Liquidated Damages in Construction Contracts - Sihela Consultants

Read more on Force Majeure Clause.

This allows contractor to complete the work scope without any delay.
However the contractor should apply in writing following the clauses in
contract agreement when he finds the grounds for EOT claims.

Benefits of Liquidated
Damages in Construction
Contracts
Sometimes contractors think that LD imposed on them doesn’t have any
advantage.However Liquidated Damages clause serves many benefits to
the parties to the contract.

Liquidated damages save both time and money. Although liquidated

damages seems like beneficial for the Employer to recover his loss, this is
a pre-determined rate which both parties agree at the time of signing the
contract. Therefore both contractor and employer do not need to
calculate the loss and damages if the project is delayed by 1 day.

However if the delay of the project is due to a reason that is beyond the
contractor, he can claim EOT. Sometimes these reasons and scenario can
create environment for disputes.

In short below are some of the benefits of LD clause in construction

contract.

It does not require any proof as the amount is pre-determined.

Employer can simply deduct LD under the contract when there is a
delay.
Both parties agree in advance to the amount of LD.Therefore
contractor has a good idea of his liability.

Tips for the contractors

If you are a Main contractor and work with subcontractors to complete
the project, then it is necessary to sign your contract agreement with the
https://sihelaconsultants.com/liquidated-damages-in-construction-contracts/ 6/10
5/14/2020 What are Liquidated Damages in Construction Contracts - Sihela Consultants

sub-contractor with necessary clauses.

In the event that the delay is due to sub contracted work and if Liquidated
Damages are mentioned in your sub-contractor agreement, then you can
recover some part of liquidated damages from the sub-contractor
depending on the project and contractual situation.

In this way you can recover part of your LD from the sub contractor who
created the delay.However this should be according to your contract.

Let me know your experience with LD.Use below comment section to

share your experience.

Please follow and like us:

Like

Related posts:

What are Variations in Cost Management Impact of COVID-19 Virus

Construction Contracts on Construction Projects

Force Majeure Clause in

Construction Contracts :
Importance and
Requirements

Impact of COVID-19 Virus on Construction Disputes : What are

Construction Projects the Common Causes
https://sihelaconsultants.com/liquidated-damages-in-construction-contracts/ 7/10
5/14/2020 What are Liquidated Damages in Construction Contracts - Sihela Consultants

About Author

Amila Gamage
A well experienced Contracts Engineer/
Trainer/ Quantity Surveyor with over 16
years of industry experience in both high rise
buildings and civil engineering projects.

Comments

Ali Reply
April 9, 2020 at 3:39 am

Thanks for this liquidated damages in construction

contracts

Amila Gamage Reply

April 11, 2020 at 10:09 am

Hope you learned something new. 🙂

Bidkon Quantity Surveyors Reply

April 15, 2020 at 4:10 pm

Thanks for sharing amazing post Quantity Surveyors

Amila Gamage Reply

May 8, 2020 at 12:41 pm

Hi Bidkon Quantity Surveyors,Thanks for

your comment.However I removed your
anchored text within the comment

https://sihelaconsultants.com/liquidated-damages-in-construction-contracts/ 8/10
5/14/2020 What are Liquidated Damages in Construction Contracts - Sihela Consultants

according to our comment approval

policy.:)

Nicola Wohlschlegel Reply

April 20, 2020 at 8:47 am

Just wanna say that this is very beneficial, Thanks for

taking your time to write this.

Leave a Reply
Your email address will not be published. Required fields are marked *

Comment*

Name* Email*

Website

Save my name, email, and website in this browser for the next time I
comment.

POST COMMENT

© Copyright 2020 Sihela Consultants

Construction Company | Developed By Rara Theme Powered by WordPress.
https://sihelaconsultants.com/liquidated-damages-in-construction-contracts/ 9/10
5/14/2020 What are Liquidated Damages in Construction Contracts - Sihela Consultants

https://sihelaconsultants.com/liquidated-damages-in-construction-contracts/ 10/10