Are liquidated damages enforceable?
Whether the clause is enforceable is a question for your solicitor, but it is rarely where a liquidated damages deduction is weakest.
Updated: . By Jack Butler-Kettle, Construction Claims Consultant.
The answer
A rate is only an unenforceable penalty if it is out of all proportion to your main contractor's legitimate interest in finishing on time. That is hard to show between businesses. Deductions more often go wrong on the dates, the notices and the arithmetic. A rate in your subcontract does not on its own prove that a deduction is due. Nor does it cap what you could owe overall. So check the completion or section dates that apply, and the extensions of time you applied for and were granted. Check the notices, the rate, any cap and how the deduction was worked out. Then check the evidence of the delay itself. Be careful before you delete or challenge the clause. It may not remove every delay risk, because without it your main contractor may claim its actual loss instead. Compare the real alternatives rather than assuming the result.
Example
Illustrative example. The scenario and figures are invented.
The facts
A main contractor plans to deduct liquidated damages at the subcontract rate of £2,000 a week. Its records show 6 weeks between planned and actual completion. The subcontractor's reviewer is asked what figure the file can show for that period.
What happens
- The reviewer checks the period, the extensions granted, the notices, the cap and the calculation.
- The reviewer shows £12,000, 6 weeks at £2,000, as unchecked arithmetic only.
The outcome
The file leaves open whether the damages are due and whether the clause is enforceable. It does not accept the £12,000 as a debt.
Our Delay Damages Claim service tests a deduction like this once it has been made.