With the ongoing shortage of construction workers
in the industry and other factors ranging from
weather to procurement problems, the threat of
project delay is real. When a contract contains a liquidated damages
clause for delay, there can be real financial consequences for
contractors. Courts have long allowed parties to distribute contractual
risks as they see fit, especially in the commercial context
where the parties are usually considered to be sophisticated, even
if their bargaining power is not always equal. Liquidated damage
provisions, such as those found for delay in construction contracts,
are common, but must be crafted in such a way as to be enforceable
and not against public policy.
Liquidated damage clauses in construction contracts are a
common way for the parties to deal with the possibility of delay in
the completion of a project and associated potential losses flowing
from the delay.1 In their most basic form, the party in breach, which
is most often the contractor, is obligated to pay the non-breaching
party, usually the project owner, some fixed sum of money per set
time period that has been agreed upon in advance and memorialized
in the contract. (It is, after all, no secret that these provisions
are meant to protect the owner.) The non-breaching party is then
compensated for losses associated with the delay without the time
and expense of having to prove what the actual damages were,
in either a civil suit or an arbitration proceeding. This option is
dimjul/123RF
CONSTRUCTION LAW
MANAGING RISK
Liquidated damage clauses for delay in construction contracts
By Tiffany Harrod and Carrie Schadle, Munsch Hardt Kopf & Harr P.C.
www.piledrivers.org PILEDRIVER | 101
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