If the provision of a new NHS building is delayed and it is the contractor’s fault, the NHS body (as “employer” under the building contract) will want the right to recover the costs of the delay.
The building contract could allow the employer to recover by proving the losses it has suffered, known as damages “at large” or unliquidated damages. However, a building contract usually creates a right to “liquidated damages”, a fixed charge for each day or week of delay. This allows the contractor to quantify his risk when entering into the contract, and the employer to know with certainty what he can recover if the contractor causes delay.
All standard form building contracts contain a liquidated damages clause with a space to fill in the amount of damages to be paid by the contractor per day or week. The amount chosen must be a genuine pre-estimate of the employer’s loss. If it is not representative of the employer’s loss, it will be an unenforceable penalty clause. If it is too low, the employer will be left out of pocket.
An employer may not want to use liquidated damages, perhaps because the level of losses that it will incur depends on factors which are unknown at the date of contract. If so, under no circumstances should the employer write “nil” in the space in the contract for liquidated damages, or leave the space blank, as both could mean that it has forsaken its right to claim any damages for delay at all. Instead, the building contract should be amended to delete the liquidated damages clause, and wording should be inserted setting out the right to claim damages at large.