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Legal Requirements for giving Liquidated Damages?

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John Reeves
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Do you have to notify an officer of the company?  Provide written notice just once?  Can you take the money off Monthly Invoices or do you have to do it on the last ones?  What do you have to do that wouldn't be obvious?

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Zoltan Palffy
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1st you have to give issue the company that is behind schedule a Right to Cure Notice. This will give them time to put togther a revised schedule on how they plan to recover or make up the lost time.  

You cant just start assessing LD's

It is possible to withhold retention on a monthly payment requisition in the amount of the LDs.

So lets say that the Ld's were $1,00 per day and that they were behind schedule by 20 calendar days.

Then $1,000 X 20=$20,000 so you are just retaining the monies until the get back on schedule if they do not show any sign of curing the project you still have the money in the form of retention. 

Zoltan Palffy
User offline. Last seen 17 hours 18 min ago. Offline
Joined: 13 Jul 2009
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1st you have to give issue the company that is behind schedule a Right to Cure Notice. This will give them time to put togther a revised schedule on how they plan to recover or make up the lost time.  

You cant just start assessing LD's

It is possible to withhold retention on a monthly payment requisition in the amount of the LDs.

So lets say that the Ld's were $1,00 per day and that they were behind schedule by 20 calendar days.

Then $1,000 X 20=$20,000 so you are just retaining the monies until the get back on schedule if they do not show any sign of curing the project you still have the money in the form of retention. 

Patrick Weaver
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Liquidated Damages (LDs) have to be a genuine pre-estimate of the damages caused by the late completion of a project and clearly defined in the agreed contract. LDs limit the damages claimable for late completion to the amount set in the contract, this can save a late contractor from a massive court claim, but can be applied under the contract without going into the courts (or arbitration). 

The prerequisites to apply LDs are (a), a properly calculated completion date taking into account all extension of time claims submitted, the claims can all be rejected but must be considered; and (b) work actually continuing past the authorised completion date.  LDs can only be claimed for the actual period of delay at the time they are deducted, not a projected period;  this means the total LDs deducted are typically updated each month until actual completion. 

To enforce LDs, there has to be a proper extension of time (EOT) clause, if there is no EOT clause (or it is defective), any delay by the client converts the enforceable LDs into an unenforceable penalty; but this opens up the option for a court case claiming damages for delay.  

In practice, enforcing LDs usually triggers a fight over EOTs and once the actual extended date for completion is determined (usually by an arbitrator or judge), LDs are then assessed on any time between this date and the actual completion date. 

While genuine LDs are typically enforceable, this is a complex area of law and varies in detail between jurisdictions, for more on this see: https://mosaicprojects.com.au/PMKI-TPI-080.php#Process1

Rodel Marasigan
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LD is a penalty clearly written in the contract. Depending of what has been agreed and sign-off  in the contract for LD, it maybe negotiated or deducted monthly on the contractor's invoice.