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OPINION
More owners (or their lawyers) have tried to insert these clauses into design contracts, and this should be a red flag for AEC firms. Beware of the liquidated damages clause
O wner/contractor agreements typically contain a liquidated damages clause, which is designed to protect the owner from the financial consequences of project delays caused by the contractor. While these arrangements are understandable as completion dates are significant to owners, new efforts to insert the clauses in design contracts represent potentially significant uninsured exposures for AEC firms.
Lauren Rhodes Martin
When contractors submit a price for their work they also contractually agree to the completion date. So, by the time the contractor is awarded the contract, it usually has the contract documents and has used them to price the job and complete a construction schedule. Once a notice to proceed is issued to the contractor, the contractor essentially controls the schedule. Liquidated damages clauses in construction contracts were first initiated – and quickly became widespread – because actual damages are difficult to establish in the case of a delay. To avoid the likelihood of disagreements and related litigation, the owner and contractor agree upfront to a reasonable daily amount that will substitute for actual damages. The daily amount will generally be assessed against the
contractor for every day or business day the project is late. Nonetheless, even with the presence of a liquidated damages clause, delay damages can still be costly to prosecute and defend. In effect, the daily amount stipulated in the contract must be reasonably consistent with what actual damages might be. If the amount selected is deemed excessive, a court may decide the clause is not enforceable. Generally, however, liquidated damages are the exclusive remedy if the project is late. As mentioned, during the past several months, more owners (or their lawyers) have tried to insert
See LAUREN RHODES MARTIN , page 10
THE ZWEIG LETTER JULY 11, 2022, ISSUE 1448
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