Liquidated Damages

Question 1

What are Liquidated Damages?

Answer 1

A genuine pre-estimate of the loss a client would incur as a result of the project being delay beyond the completion date stated in the contract.

Question 2

What are Unliquidated Damages?

Answer 2

It is not necessary to agree the level of damages at the outset and no value for them need be entered in the contract. They are therefore based on the actual loss of the employer and are known as unliquidated damages. They will need to be proven at the time of the loss.

Question 3

What is ‘time at large’?

Answer 3

If no completion date is set by the contract, time is ‘at large’ and liquidated damages cannot be deducted. The contractor is then no longer bound by the obligation to complete the works by a certain date.

Question 4

What is a typical condition precedent for claiming LD’s?

Answer 4

Some contracts may require the issue of Non-Completion Certificates. These may be a condition precedent for the deduction of damages.

Question 5

How are liquidated damages calculated?

Answer 5

They should be based on the level of damages that could reasonably be foreseen as being incurred by reason of the anticipated breach.

Liquidated damages are likely to be based on one or more of the following:

1. Loss of return on capital: substantial capital is inevitably locked up in any development. While the building remains incomplete, the employer is deprived of any return on this;
2. Direct loss: loss of rent or rent paid on an existing or alternative building whilst the new one is being built, additional professional fees incurred; and/or
3. Extended financing costs: additional interest incurred while the building remains incomplete.

Question 6

What would cause time to become at large?

Answer 6

This can occur if the PC date stated in the contract is reached and no extension of time has granted or non-completion certificate has been issued.