Timing of Liquidated Damages Recovery and Related Liability Issues

Abstract

Schedule overruns are persistently observed in the construction industry, and the process of accurately calculating the damages incurred by the injured party is perceived to be burdensome. To overcome that, liquidated damages (LD) provisions stipulate a predetermined sum for failure to perform the construction work within the contract’s agreed completion date. While it is recognized that the courts consider the contract language when addressing any contract’s breach, there is a lack of work investigating the collection of LD under standard forms of contract as well as the timing of such recovery. That said, it is still unclear as to when the owner’s right for the recovery of LD from the contractor ripens and can consequently be exercised. Moreover, project owners perceive that LD provisions do not completely cover their delay losses; especially when a recovery limit is stipulated by the contract. To address that, owners search for additional recovery instruments to be used. To this end, the objectives of this paper are as follows: (1) review, compare, and analyze the LD provisions under national and international standard forms of contract; (2) examine the timing of LD recovery and the related liability issues; and (3) explore the different strategies or tools that could be used by the owner to ensure an ultimate recovery of delay damages, the possible interplay among these tools, and the impacts of the different recovery strategies and scenarios. The study contribution lies in advancing a clearer discernment on the LD recovery mechanism in terms of timing and available instruments. As such, the findings of this study help in identifying what may be viewed as the ideal time that owners become entitled to start levying delay damages as well as in deciding on the best recovery tool(s).