The owner moved to set aside the jury’s verdict claiming that liquidated damages of 30% were disproportionate to the contractor’s actual damages, which were at most 20%
By Bill Wilson of Robinson+Cole Published on August 3, 2022 The purpose of a liquidated damages provision in a construction contract is to establish in advance a fair amount of compensation to the injured party for a breach of contract to avoid spending time and money fighting over uncertain actual damages after they occur. Generally, to be enforceable, a liquidated damages provision must satisfy three criteria: (1) the damages resulting from a breach of contract must be uncertain when the parties enter the contract; (2) the parties must clearly express their intent to liquidate damages in advance; and (3) the amount stipulated for liquidated damages must be reasonable and commensurate with the actual damages it is meant to represent.
If the party disputing liquidated damages can prove either that actual damages were not difficult to ascertain or that the liquidated damages were not a reasonable estimate of actual damages and were not reasonably proportionate to the actual damages, the liquidated damages provision will not be enforced
If the party asserting liquidated damages meets this burden, the party opposing liquidated damages (usually the Contractor) can defeat the liquidated damages provision by presenting evidence that there is an “unbridgeable discrepancy” between the actual damages and liquidated damages (i.e., that the actual damages would be significantly less than the liquidated damages)
Kiefer of Pepper Hamilton LLP Published June 3, 2020 A federal court in Penna. found a liquidated damages provision unenforceable where the per day liquidated damage amount was copied from contracts for prior unrelated projects rather than a project-specific forecast of likely damages
Through a liquidated damages provision, contracting parties agree in advance to the amount of losses or damages the non-breaching party will suffer in the event of a breach. Liquidated damages provisions are typically utilized for construction delays because damages resulting from a delay are hard to define or calculate, thus providing the parties with increased certainty in the event of a breach
The contract allowed for “delay damages” if the Contractor’s request for those damages “is determined to be compensable.”
In a typical employer contractor relationship, if the project is delayed by matters for which the contractor is responsible (non-excusable delay events), then the contractor may find itself liable to the employer for damages. Damages payable to an employer for late completion of a construction project are commonly referred to as liquidated damages
It can also be a monumental mistake if insurance coverage for indemnification damages and defense costs are lost because of an inadequate tender. The legal definition of “tender” is simple; it is “[a]n unconditional offer of money or performance to satisfy a debt or obligation.”
Direct v. Consequential Damages Damages are often characterized as direct or consequential...Why the Characterization of the Damages Matters Contracts often contain a mutual waiver of consequential damages provision