Professional engineer architect worker with protective helmet and blueprints paper at house building construction site

Liquidated damages in construction contracts: How much can delay cost?

Ben Johnson ||

Liquidated damages clauses fix the amount that one party must pay another party for breach of contract. In construction contracts, they often fix the amount that a builder or subcontractor must pay their client if their work isn’t completed in time.

Liquidated damages clauses can help avoid arguments about loss caused by delay and give certainty to builders, subcontractors and owners. They can also help to motivate contractors to get their building work done in time.

Penalties

The amount specified in a liquidated damages clause must be carefully considered when entering into a construction contract. The amount must be a genuine pre-estimate of the loss that the party will incur from the breach. If the amount is so large that it is out of all proportion with the greatest possible loss likely to result from the breach then it may be considered to be a penalty and therefore unenforceable.

Nominal damages

If the amount stated for liquidated damages is unreasonably low, then it may amount to ‘nominal damages’. If so, the party who has suffered from the delay may be able to fall back on the general law of damages and still claim the amount of their actual loss caused by the delay. The amounts specified in the fallback provisions for a number of commonly used standard form construction contracts are likely to be considered nominal damages by NSW Courts and Tribunals.

It’s important that all parties to a construction contract carefully consider the amount identified in any liquidated damages clause. If not, the clause may be ineffective and misleading.

Delay

If you have entered into a contract that contains liquidated damages for delay, you should carefully consider what the contract says about delay. Most construction contracts will fix a date for practical completion, which will be the date the work under the contract must be finished. Liquidated damages clauses often kick in when the work has not been completed by the date for practical completion.

Extensions of time

Most construction contracts also include provisions for the extension of time for common delays that aren’t caused by the contractor – such as inclement weather or delays in receiving instructions. These extension of time clauses can extend the date for practical completion so  that if the contractor complies with the requirements in the extension of time clause, the liquidated damages clause does not kick in until a later date than stated in the contract.

If you need assistance with a liquidated damages clause, contact our Building and Construction team on +61 2 9895 9217 today.

Share:

Send an enquiry

Any personal information you provide is collected pursuant to our Privacy Policy.

Categories
Archives
Author

More posts

A guide to intrafamily adoption

Adoption is the process where a parent’s legal rights for their child are transferred to another person. The formal adoption of a stepchild or close relative is known as intrafamily adoption.

Passenger movement and visa data-matching by the ATO

Heading overseas for work or a holiday? Taxation issues, including tax residency, should be on front of mind when departing from or arriving to Australia. Why? Because the Australian Taxation Office (ATO) can follow your footprints and, if you’re not careful, spring unexpected taxes on you.

Is it really necessary for my executor to have so many powers?

People often question why the executor of their estate needs to have so many powers. Simply put – if your executor isn’t given any additional powers by your Will, then they are limited to what is set out in the Trustee Act. One area that this can lead to issues in, is the family home – particularly if beneficiaries aren’t in agreement.

Essential terms of a commercial lease

A commercial lease is a contract that details the rights and obligations of a tenant and landlord. So, what are the necessary terms of a commercial lease?

Responding to data breaches

In the final part of our four-part series on your business’ responsibilities related to cyber attacks and data breaches, Special Counsel John Bennett how businesses should respond to data breaches, including application and requirements of the Notifiable Data Breaches Scheme.

Security of personal information

Part 3 of a four-part series on your business’ responsibilities related to cyber attacks and data breaches where Special Counsel, John Bennett provides an overview of some court decisions and proceedings where ‘security’ of personal information has come into issue.

Parental alienation in Family Law

The concept, Parental Alienation Syndrome, was initially brought about by American psychiatrist Richard Gardner in 1985. The term parental alienation is used to describe a situation where one parent is involved in psychologically manipulating their child to turn against the other parent.

Are you liable for labour hire workers if they are injured?

Many employers (host employers) engage employees of labour hire companies, particularly in the building and construction, hospitality and manufacturing industries. However, what happens when one of these employees gets injured at the host employer’s work site? Who is liable for the injuries?

The risks with cyber attacks and data breaches

Part 1 of a four-part series on your business’ responsibilities related to cyber attacks and data breaches. Cyber attacks and data breaches are the top business risk in Australia according to Aon’s 2023 Global Risk Management Survey.

© 2024 Coleman Greig Lawyers  |  Sitemap  |  Liability limited by a scheme approved under Professional Standards Legislation. ABN 73 125 176 230