As employers in the construction industry it is important for local authorities to protect themselves when a building project is delayed. How can this be done? Well, one of the most obvious ways is by including a liquidated damages clause in the building contract.
Most construction contracts contain a clause setting out the amount of liquidated damages (known as LADs) that the contractor will be charged if there is delay to the project which is his responsibility.
The level of LADs is agreed by the parties at the outset.
LADs must represent a genuine pre-estimate of the loss suffered. If the LADs are too high, they may be found to be a penalty and will be unenforceable. Although the employer can still recover its actual cost of the delay, it will have to prove what that was, which can be difficult and time consuming.
It is also important not to set LADs too low as an LAD clause in a contract will generally be an exhaustive remedy for delay. The LADs will normally be the only recovery from the contractor regardless of the actual cost of the delay.