Contractual terms necessary for enforcement of liquidated damages

California weather can often interfere with construction projects. In fact, many issues, like supply shortages or equipment breakdowns, can put a building project behind schedule and delay your company’s growth. In recognition of possible losses, many construction contracts include clauses about liquidated damages. A contractor pays costs associated with not completing the job on time. The contract will explain the conditions that make liquidated damages payable. If these terms are not met or unfair, then a court may decide a contractor does not have to pay.

Overview of liquidated construction damages

The law establishes that liquidated damages are intended to recoup losses that a party can document. They are supposed to be reasonable costs. If this standard is not met, payment may not be enforceable.

Liquidated damages can include:

  • Lost rent when delays prevent leasing of a building
  • Lost business when a company cannot expand operations as planned
  • Missed loan payments

Fault determines whether the clause is enforceable

The first consideration is the determination of fault. A contractor will want a contract that recognizes that not everything is under a contractor’s power to control. Delays sometimes occur because the customer wants to change something midway through. That scenario does not place fault on the contractor. However, a construction contract will typically hold the contractor accountable for things like failing to understand the scope of the job in the beginning or mismanaging labor resources.

Extension of time clauses

A contract will also outline acceptable reasons for a contractor to request extra time in an extension of time clause. This could bad weather or something unforeseen like discovering human remains when digging.

Partial possession and early use clauses

A client and contractor may choose to structure a contract so that the client can use portions of the building even when the whole project is not done. This arrangement gives some relief to a company that is under financial pressure to occupy a building. At the same time, the contractor has a pathway to avoid paying liquidated damages if some aspects of the job fall behind.

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