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Liquidated Damages

2 replies [Last post]
Faried Khan
User offline. Last seen 10 years 26 weeks ago. Offline
Joined: 11 May 2007
Posts: 41
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Hi All,

In most of the projects I have worked on, the Liquidated Damage was a fixed rate say 10% of the Contract sum.

However, as far as I know, the way the liquidated damages are assessed as a percentage is not quite accurate.

So, please can anybody advise me, if I wanted to assess the liquidated damages, what should I do, in other words, how exactly (or close to exactly) could I calculate the liquidated damages!!

Thanks in advance for your valuable answers.

Replies

Mike Testro
User offline. Last seen 15 weeks 1 day ago. Offline
Joined: 14 Dec 2005
Posts: 4409
Hi Faried

My understanding of your question is that you are setting the LAD’s for the Employer to go into the Contract.

If so they must be a genuine ascertainment of the damage and or loss that will be suffered if the project is delivered late.

You must take into account:
Loss of income.
Rent on existing premises.
Finance Charges.
Standing Staff.
Consultancy Fees.
Insurances.
Currency Fluctuations.

If the LAD’s are set too high the Contractor will build in a contingency in his tender.

If there are no LAD’s then the damages are "At Large" and therefore limitless and few switched on Contractors will tender.

In most contracts the extension of time clause is set down to protect the Clients right to deduct LAD’s because he cannot penalise a contractor for his own defaults.

Best regards

Mike Testro
James Barnes
User offline. Last seen 38 weeks 1 day ago. Offline
Joined: 6 Sep 2007
Posts: 241
erm, right. My understanding (from the last time I was threatened with LDs)

Liquidated damages are codified into the contract to make the claiming (and in somecases limitation) of damages easier to assess. Often they expressly replace Ascertained damages.

The most common formula I have seen is that LDs will be payable at a rate of $xxx (or yyy% of the contract sum) per day of delay to the contract completion upto a value not exceeding zzz% of the total contract value.

It will be codified in the contract. If it’s not there, then there are no LDs nominated and they can’t be claimed, the claimant would need to demonstrate ascertained damages (loss of rent etc) and probably go to court to get them.