👉Challenging Liquidated Damages
💫Contractors and subcontractors may attempt to challenge the amount of damages to be levied closer to the time they are deducted rather than when signing the contract.
⏺To overcome this challenge, the employer must prove that the damages included in the contract were a genuine pre-estimate of the loss at the time the damages were calculated.
*Key Principles*
- *Genuine Pre-Estimate*: The employer must demonstrate that the damages were a genuine pre-estimate of the loss.
- *Irrelevance of Actual Cost*: The actual cost of damages incurred by the employer is irrelevant.
- *Exclusive Remedy*: Liquidated damages are an exclusive remedy, and the employer cannot revisit and increase the level of damages deducted if the actual loss suffered is greater.
*Challenging Damages During Tender Negotiations*
⏺If the contractor does not consider the level of damages to be reasonable, it can be challenged during tender negotiations rather than after the contract has been signed.
*Early Possession or Take-Over*
Challenges may arise where there is early possession or take-over of a part of the work by the employer. Contracts generally allow for this proportion of the value of works to be considered so that full damages are not deducted.
*Practical Completion and Damages*
At the end of a project, the date of completion or practical completion is often subject to some debate. In practice, the date of achieving practical completion is sometimes agreed and formalised some time after the actual event occurred.
*Unliquidated Damages*
If the relevant section of the contract is left blank, unliquidated damages will apply. Therefore, it will be for the employer and their representatives to collate records and prove actual loss.
*Inserting 'Nil' in the Contract*
If 'nil' is inserted in the relevant section of the contract, the employer will not be entitled to either liquidated or unliquidated damages. This should be advised against as it significantly reduces the contractor's incentive to complete the works by the completion date and prevents the employer from recovering losses.
*Recovery of Liquidated Damages*
Under JCT contracts, recovery of liquidated damages is separate from the interim payment procedures, and therefore would normally be dealt with by the issue of a 'pay-less notice' by the employer, rather than being included in an interim valuation.
*Mechanism for Amending Completion Date*
Where there is no mechanism in the contract to award an extension to the completion date, the employer cannot benefit if they are responsible for the delay through items such as delayed possession or changes to the scope of work, for example.
*Payment by Contractor to Employer*
At the end of a project, the level of damages to be deducted may exceed payments outstanding to the contractor. In this instance, the contractor would have to make a payment to the employer. The relevant provisions in the contract should be reviewed in this instance, as they may well cover contractor payment to the employer.
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