Liqudate damages

Estimating

Riad Alhammoud Project management| Langan Abu Dhabi, United Arab Emirates

Dears,
I used to hear about liqudate damages a lot in case of disputes from owners and contractors but honestly didn't understand when it should be used exactly and how it differs from penalty?

Posted: May 30, 2019 1:40 PM

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Ali Hossam Sr.Planning Engineer| CCC Qatar

Liquidated damages are an amount of money, agreed upon by the parties at the time of the contract signing, that establishes the damages that can be recovered in the event a party breaches the contract. The amount is supposed to reflect the best estimate of actual damages when the parties sign the contract. These usually apply to a specific type of breach, and in construction, it is frequently the failure to complete work on time.

Posted: May 17, 2020 12:24 PM

Peter Rapin Subject Matter Expect; Project Delivery| Independent Consultant Ontario, Canada

Liquidated damages is a pre-agreed cost (damage) of a contract breach. It must be based on a reasonable calculation of the actual cost of such a breach. It is not a penalty. The intent of including LD in contracts is to ensure both parties recognize the impact of a breach and minimize court costs

Contract breach has to be established before LD can be applied. Breach can be established by mutual consent or legal action (not unilateral). Once breach is established LD is applied - there is no need to establish the extent of damages through the court system. However, either party may question the 'reasonableness' of the LD. If the LD is excessive it may be determined by the courts to be a penalty and thus not valid.

I would hesitate to apply a percentage of contract value as LD as this would most likely not reflect a reasonable cost or damage due the a breach and thus would be subject to appeal.

Posted: May 18, 2020 11:29 AM

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