Construction projects in Massachusetts and around the country are often delayed because material deliveries are late, subcontractors do not complete their tasks on time, or workplace accidents bring progress to a halt. These delays cost contractors money, and they are also a major source of inconvenience for their clients. This is why many construction contracts include a clause that requires liquidated damages to be paid each day that passes after a building was scheduled to be completed.
Liquidated damages clauses are included in contracts when a breach would result in losses that are difficult or impossible to quantify. In these situations, the parties agree on a figure for these losses in advance. A liquidated damages clause should encourage the contractor to complete their work in a timely manner, but it should not be punitive. If it is, it may be challenged in court and could be struck down.
When the client is at fault
Liquidated damages are usually collected each day a construction project continues after the substantial completion date. This is the point where major building work has been completed and the client can occupy the building. Disputes over liquidated damages often lead to construction litigation, and sometimes the contractor prevails. If a construction delay is caused by changes to the building specifications demanded by the client, a liquidated damages clause would likely be unenforceable.
Avoiding liquidated damages
Contractors who wish to avoid paying liquidated damages should cost their projects carefully and refrain from making promises that they might not be able to keep, and their clients could reduce their chances of becoming embroiled in a liquidated damages dispute by devoting more time to the planning stage. Contracts only serve their intended purpose when they are enforceable, which is why liquidated damages clauses should be drafted with great care.