Liquidated damages where delay not your fault
When the completion time for building work passes and the works are not finished, then the builder or subbie might incur “Liquidated Damages” (LD’s).
The amount of the LD’s will be found in the contract and will be the amount of money that the owner/principal builder has reasonably estimated to be the loss that they will incur because the works are not completed on time.
However, if owner/head contractor actions cause a delay in reaching practical completion, then the owner/head contractor cannot levy liquidated damages (LD’s) for that period.
So if a delay wasn’t your fault and LD’s have been applied, what can you do?
In short, it will be up to you to establish that the delay was the cause of the owner/head contractor. For example, if a variation was requested by the owner and additional time was required to compete the job but not allowed, then the owner will be obliged to allow an extension of time. If they do not, then their right to LD’s for the period of that delay may be lost.
However, on building sites there are usually multiple causes of delay and delays may have been caused by more than one party. In such cases, it may be difficult to determine the extent of the LD’s for which you should be responsible.
So, if you are a sub-contractor and you believe that you are entitled to an extension of time, then you must still comply with the obligations under the contract for requesting an extension of time. If you do not, and at a later date it is established that a delay was caused by your action (or inaction), you may be able to defend part of the claim for liquidated damages, but not all of it.
Ultimately, to minimize the risk of liquidated damages you need good contract management practices which include:-
- a review of every contract you enter into to determine what events will allow an extension of time,
- the process for applying for an extension of time and
- who will be responsible for making sure that it happens.
There are some things that you simply cannot leave to chance.