1. What are liquidated damages for delay in construction contracts?
Liquidated damages for delay in construction contracts is a sum of money that is awarded to the innocent party in the event that the works are delayed.
It is generally the builder in residential contracts or the subcontractor in commercial contracts who must pay that amount of money.
2. How much should liquidated damages for delay be?
This depends on the contract and what the parties agree on prior to entering into the contract.
Commercial contracts can vary greatly depending on the scope of the project. This can be calculated on either an hourly or daily rate, but daily is more common.
Parties in a residential contract should also pre-estimate and agree prior to entering into the contract. Often, the default rate for residential contracts is $50 per day.
3. If liquidated damages are listed as $0, does that mean that parties cannot claim damages for delay?
When $0 is listed on the contract, parties cannot claim liquidated damages, but can still claim damages for delay under the general laws of contract. This is known as unliquidated damages and can often be more than $50 a day but are also generally harder to prove.
4. What should builders and subcontractors be aware of to minimise the risk of delay damages?
Prior to entering into the contract, builders and subcontractors should be aware of what liquidated damages are and how much is listed.
It’s important to understand that even if $0 is listed, you can still be held responsible if you haven’t reached practical completion.
Once entered into the contract, good contract administration is key (i.e. make sure everything is in writing.)
5. What should principal contractors and homeowners be aware of to help ensure that they are adequately compensated if practical completion is delayed?
Prior to entering into the contract, principal contractors and homeowners should spend the time calculating what the loss and damages are likely going to be. If you overestimate, it’s likely you won’t be able to claim it. However, if you underestimate (or go with the standard $50), and you end up incurring a lot more loss and damage, then you’re likely to be capped at the amount on the contract.
During the contract, you should be aware that it is not always going to be valid. It’s important to objectively assess whether something is reasonable, warranted, and should be approved.
For more information and tailored legal advice, book a consultation with a Trusted Construction Lawyer in Melbourne, Brisbane or Sydney. Phone and Zoom consultations available.
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