What are liquidated damages (LADs) in a subcontract?
Liquidated damages, or LADs, are a fixed sum for each day or week you finish late, agreed in the contract before work starts.
Updated: . By Jack Butler-Kettle, Construction Claims Consultant.
The answer
Delay damages is another name for the same charge. LAD stands for liquidated and ascertained damages. The rate takes the place of proof: your main contractor does not have to show what your late finish cost it. In a subcontract, the charge can reach you in two ways. Your subcontract may set its own rate. Or it may set no rate, as the standard JCT subcontracts do, and let your main contractor recover the loss your late finish caused it. That loss can include the damages its client takes from it. Either way, the charge runs from your completion date as extended, not the original one. So before you sign, find the rate, any cap and the notices the clause needs. Once work starts, send a delay notice every time others hold you up. If a charge lands, check the rate, the weeks and the notices before you argue about the delay.
Example
Illustrative example. The scenario and figures are invented.
The facts
A drylining subcontractor's £400,000 subcontract sets liquidated damages at £2,500 a week, capped at 5 per cent of the subcontract sum. Its works finish 6 weeks after the original completion date. A 2-week extension was granted during the job.
What happens
- The main contractor's first Pay Less Notice counts all 6 weeks from the original date: £15,000.
- The extension moves the completion date by 2 weeks, so 4 weeks are late.
- Four weeks at £2,500 is £10,000. The cap, 5 per cent of £400,000, is £20,000, so it does not bite.
- The subcontractor sends the recount with the extension letter attached.
The charge in figures
| Item | Amount |
|---|---|
| As first deducted, 6 weeks at £2,500 | £15,000 |
| Extension granted, 2 weeks | £5,000 |
| Charge from the extended date, 4 weeks | £10,000 |
| Cap at 5 per cent | £20,000 |
The outcome
The main contractor accepts the recount, and £5,000 comes back in the next payment.
To have a liquidated damages charge tested against your subcontract and extensions, see our Delay Damages Claim service.