Key questions on liquidated damages in construction contracts

Before any construction project begins, a contract is signed among the key parties of the project. The contract decides who pays for what and which party takes responsibility for which kind of disruption or delay. Among all these specifics, every construction contract must have liquidated damages as an essential part of it.  

This article will discuss some key questions and answer them for your ease so that you realize the importance of liquidated damages

What do you need to know about liquidated damages?

When you begin your construction project, make sure all the key issues are taken care of in the contract. Hire a construction claim consultant who will help you analyze the likelihood of various situations that you may need to handle, which make it necessary to take into account the Liquidated damages. Following are some of the key questions you need to know answers to: 

What are liquidated damages?

The amount of money which all parties of a construction contract settle for is called liquidated damages. These are decided in the form of a clause in the contract before the project begins. These measure the number of damages that the project can bear In case any unanticipated circumstance occurs.

How are these calculated?

Liquidated damages are a part of the contract in the form of a clause, which is a formula.  There is a total cost of a contract.

Pick the amount that delaying by every single day costs andtake its product with thenumber of daysit gets delayed. Now subtract the outcome from the cost of the contract. The result is your liquidate damages.

Why must contracts include a liquidated damage clause?

The addition of the liquidated damages clause can reap many benefits for your project. First and foremost is that you can predict the damages. It gets easier for both parties of the contract to negotiate and settle on a certain amount. In such a scenario, the amount they settle on is only fair, with the added advantage that none of the parties is unhappy.

In one way, it is a form of insurance that will benefit you as the project owner. Since you have decided in the contract, no party can turn its back, and it gets easier for the owner to calculate the damages in case of the breach without going in the details of the on-ground situation.

For the contractor, it gets easier to analyze the risks the project process may face and thus amend the schedules accordingly.

When are liquidated damages enforceable?

In the UAE, the court assesses whether the actual damages are equal to the pre-agreed compensation decided in the liquidated damages clause of the contract. If you are starting your project there, make sure the damages on-ground are on par with the ones mentioned in the contract. For this, you need to hire good Construction claim consultants Dubai has got to offer for saving yourself from any penalization. 

In the US, the statues in various states require that the liquidated damages as assesses in the clause are not unreasonable when the contract is signed among the parties. The courts look whether the actual damages are easy to quantify, that the amount is already liquidated and that you treat it as compensation and not a penalty.

Is your construction project about to begin?

Make sure you add all the necessary clauses. The liquidated damages are always a savior. They save your time, effort and in somecases money. Remember, this clause can make the life of the project owner as well as the contractor.