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What are the types of the contractual Penalties to be paid by contractor?
Network:792



Dears,

Beside penality for delay and bad workmanship. Are there any other penalties to be paid by the contractor? and how can we calculate it?
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Network:2176



Riad,

any contract provision can be supported by a penalty, if allowed by local law. Bad workmanship may translate into deliverables not conforming requirements (in a contract type where results are promised, often a fixed price) or people not adhering to work standards (in a contract where only professional work is promised, mostly time&material).

For example adhering to safety standards could be a contract clause, if broken, penalties could apply.

Penalities should motivate the seller to not breach the contract, if they are too low, the seller might decide to better pay penalties than fulfilling the contract. Penalties also should be able to cover the anticipated damage done bay a breach to the buyer.

Sometimes it is more motivating to use incentives instead. Then you need to have a minimal and a stretch goal.

If you work with penalties/incentives you need to administer them, some project use the role of claim manager.

Penalties could also apply to contractual obligations of the buyer, e.g. if the buyer does not deliver requirements in time. They also could be non-financial, like waivers.
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1 reply by Riad Alhammoud
Apr 15, 2019 12:06 PM
Riad Alhammoud
...
Thanks Thomas for great feedback.
Network:15548



It has to do with the content of the contract. You may be able to find different type of those penalties in the market.
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1 reply by Riad Alhammoud
Apr 15, 2019 12:09 PM
Riad Alhammoud
...
Thanks Abofazel and Steve for your feedback.
Network:64



In our industry (government), although there are typically penalty clauses within the contract, it is generally frowned upon to exercise them, and rather it is encouraged t work with the contractor to resolve the issue. In performance orientated contracts, it is a lot easier to negotiate "penalties" if Key Performance Indicators (KPIs) are not met.
Network:792



Apr 15, 2019 1:10 AM
Replying to Thomas Walenta
...
Riad,

any contract provision can be supported by a penalty, if allowed by local law. Bad workmanship may translate into deliverables not conforming requirements (in a contract type where results are promised, often a fixed price) or people not adhering to work standards (in a contract where only professional work is promised, mostly time&material).

For example adhering to safety standards could be a contract clause, if broken, penalties could apply.

Penalities should motivate the seller to not breach the contract, if they are too low, the seller might decide to better pay penalties than fulfilling the contract. Penalties also should be able to cover the anticipated damage done bay a breach to the buyer.

Sometimes it is more motivating to use incentives instead. Then you need to have a minimal and a stretch goal.

If you work with penalties/incentives you need to administer them, some project use the role of claim manager.

Penalties could also apply to contractual obligations of the buyer, e.g. if the buyer does not deliver requirements in time. They also could be non-financial, like waivers.
Thanks Thomas for great feedback.
Network:792



Apr 15, 2019 8:04 AM
Replying to Abolfazl Yousefi Darestani
...
It has to do with the content of the contract. You may be able to find different type of those penalties in the market.
Thanks Abofazel and Steve for your feedback.

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