As a contractor, it’s not uncommon that you sign contracts containing liquidated damages provisions to help foster a sense of accountability between yourself and the owner. Owners appreciate the inclusion of this provision because it protects them from lazy or uninspired contractors who often fail to drive projects forward in an efficient or timely manner. Just as you have legal recourse for pursuing an owner who refuses to pay you for your hard work, owners have the right to legal compensation for stalled or delayed work that arises out of poor planning and a lack of professionalism.
In part one of this two-part series, the Miami contractor attorneys at Cotney Construction Law introduced the topic of liquidated damages provisions and explained what happens when you sign one of these provisions. Now, we will discuss the important difference between reasonable and punitive liquidated damages to help you avoid paying for an unqualified provisional breach.
Reasonable Liquidated Damages
Owners typically want projects finalized as quickly as possible so they can start making a return on their investment. Although contractors do their best to stay on the same page as the owners they work with, there’s no guarantee that they will be clued in on every detail of the owner’s plan. In some cases, the contractor may not be privy to the importance of a deadline and shrug it off. This can be catastrophic for your partnership with the owner and your reputation within the construction community
Think about this. An owner has data to confirm that a Fall opening for their project will help offset the cost of construction significantly by capitalizing on a critical time frame for explosive short-term profits. However, the contractor is unable to meet this deadline resulting in a delayed project until the following Spring. If this happens, the owner could lose a substantial amount of money. At the end of the fiscal year, the owner may discover that your delays squandered their profits. Therefore, when you fall behind schedule and the blame is placed firmly on your shoulders, you will be responsible for compensating the owner for your late work.
Punitive Liquidated Damages
In part one, our Miami contractor attorneys noted that not all delays qualify for liquidated damages. If a contractor believes the liquidated damages provision in a contract is punitive or harsh, they should calculate the proposed cost of damages and compare it to the overall cost of the project. Generally, there will be a noticeable disparity between these two values to help illustrate that the damages are punitive in nature. Alternatively, the contractor can ask the owner if the damages are intended to be punitive. Admission of punitive liquidated damages will invalidate the claim in court. Remember, if you plan to take an owner to court, consult a Miami contractor attorney for all of your legal needs.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.