Liquidated Damages for Delay
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| When a construction project is delayed through the fault of a contractor, that contractor may be responsible for liquidated damages. Many construction contracts provide for this eventuality by specifying that the contractor must pay a predetermined amount for each day of delay attributed to it. A court will generally enforce such a liquidated damages provision so long as the payment amount is commensurate with the owner's entitlement to damages as opposed to an amount that, instead, operates to penalize the contractor.
The liquidated damages clause will be considered a forfeiture provision unless the amount to be paid is reasonable. "Reasonableness" is determined as of the time that the parties enter into the construction contract. As a gauge for determining the reasonableness of the amount, consideration will be given to the owner's actual amount of damages emanating from the delay. This is so despite the base function of the liquidated damages clause, which is to fix damages at the time of contracting to eliminate the need for computing and proving the owner's damages at the time of trial. Additionally, if the liquidated damages provision is intended to operate only as an inducement to performance rather than to compensate the owner for the contractor's delay, it will be unenforceable. Copyright 2010 LexisNexis, a division of Reed Elsevier Inc. |