The delay damages in the subcontract I've been sent have no cap
If we finish late, the subcontract makes us liable for every loss the main contractor suffers, with no limit at all.
Updated: . By Jack Butler-Kettle, Construction Claims Consultant.
What's happening?
Subcontracts deal with late finishing in one of two ways. One is a fixed rate of damages for each day or week of delay. The other is a promise to pay whatever loss your main contractor suffers because of your delay. Either can come without a cap. On a large project, the main contractor's own delay damages, its site costs and other trades' claims can each exceed the value of your package.
With no cap, one late finish can cost you more than the whole subcontract is worth. It also makes the rest of the subcontract bite harder. A short delay notice period, or a right to deduct estimated losses from your payments, matters more with no limit on what can be taken.
Whether a particular damages clause is enforceable is a question for your solicitor. The commercial questions come first, and you answer them before you sign. What is the rate? What could it add up to on this programme? What cap should you ask for?
The solution
Work out what you could lose before you sign. Take the rate, or the kinds of loss your main contractor could claim, and set it against a realistic overrun on this programme. Then ask for a cap set as a percentage of the subcontract sum. Ask for a fixed rate in place of open-ended losses, and plain wording giving you more time for delays that are not yours.
Whatever you cannot cap, price. Pre-Signing Contract Review rates the damages clause alongside every other clause that moves money or risk onto you. We write the cap and the other amendments to ask for, and set out what to price in if they are refused.
Example
Illustrative example. The scenario and figures are invented.
The facts
A curtain walling subcontractor is offered a £2.1m subcontract on a hotel. It must pay all loss and damage the main contractor suffers from its delay, with no cap. The main contract's delay damages are £45,000 a week.
What happens
- The subcontractor works out its exposure. A 4 week overrun on the facade would pass down £180,000 of the main contract's damages alone. That is before the main contractor's own site costs.
- It proposes a cap of 10 per cent of the subcontract sum, £210,000, and a fixed weekly rate in place of all loss and damage.
- The main contractor refuses the fixed rate and accepts the cap.
- The subcontractor prices the risk left inside the cap into its final figure.
The exposure against the cap
| Item | Amount |
|---|---|
| Subcontract sum | £2,100,000 |
| Main contract delay damages | £45,000 a week |
| 4 week overrun, damages alone | £180,000 |
| 8 week overrun, damages alone | £360,000 |
| Cap agreed | £210,000 |
The outcome
The subcontractor signs with its liability for delay capped at £210,000, 10 per cent of the package. Without the cap, an 8 week overrun would have passed down £360,000 in damages alone.