Parties may also agree to place a cap on the amount of the liquidated
damages, whether it is a sum certain or a percentage of the
final contract price or the contractor’s fee.
Another important factor to consider is how the liquidated
damages provision will be triggered. This includes a consideration
of whether it will be based on substantial completion, important
milestone dates, a certain date or a certain number of days from
a notice to proceed, and the impact of schedule adjustments
requested either by the owner or the contractor. It is important
defense for a contractor to ensure that there is a workable mechanism
for contract deadlines to be extended when delays are caused
by things not in the contractor’s control such as delays caused by
the owner or weather events. This is why it is important to document
delays and provide notice to the owner when they are not
caused by the contractor.
Lastly, in some states, the liquidated damages specified for a
particular breach will be the exclusive remedy available for that
breach. This means that if the breach, for some reason, caused
actual damages greater than those provided by the liquidated
damages provision, the non-breaching party’s damages will still be
limited to the amount agreed to in the contract for the liquidated
damages. In those states where this is not the automatic rule, a
contractor may want to keep this in mind and specify in the contract
that the liquidated damages are the exclusive remedy for a
project delay.
CONSTRUCTION LAW
Flow-down liquidated damage provisions
General contractors usually try to pass some of the liability for
project delays to their subcontractors. When acting as a subcontractor,
it is important to pay attention to liquidated damage provisions
in the prime contract that may be incorporated by reference
and flow down into the subcontract, as they may be assessed at a
higher rate than those the subcontractor has agreed to. Generally,
for damages to be assessed under these provisions, the subcontractor
must have been responsible for the delays, and may not be the
result of either other subcontractors or the general contractor. And
to collect the flow-down liquidated damages, the owner must have
actually assessed liquidated damages to the general contractor.
A subcontractor should make sure that it is responsible only for
those delay damages it causes. t
Tiffany Harrod is an attorney at Munsch Hardt Kopf & Harr P.C. in
Houston, Texas and the chair-elect of the Construction Law Section
of the Houston Bar Association. Carrie Schadle is a senior attorney at
Munsch Hardt Kopf & Harr P.C. in Houston.
Endnote
1. Liquidated damage provisions can be used to compensate a party
in the event of other non-performance or breach of contract, and
the same principles would apply as those discussed here related
to delay.
DICEP
2020
NEW ORLEANS
LOUISIANA
September 23–24, 2020
SAVE THE DATE
AND JOIN US IN SEPTEMBER
The Pre-conference Course will be
held Tuesday, September 22, 2020
www.pdca-dicep.com/2020-conference
www.piledrivers.org PILEDRIVER | 103
/2020-conference
/www.piledrivers.org
