Calculating Liquidated Damages in Construction Contracts in Australia
Liquidated damages are a common feature of construction contracts in Australia. They are a pre-agreed sum of money that a contractor must pay to the employer if they fail to complete the works on time. The purpose of liquidated damages is to provide the employer with a remedy for delay that is predictable and quantifiable. In this article, we will explore how to calculate liquidated damages in construction contracts in Australia.
What are Liquidated Damages?
Liquidated damages are a pre-determined sum of money that the contractor must pay to the employer if there is a delay in completing the works. They are usually expressed as a daily rate and are capped at a certain amount or percentage of the contract price. Liquidated damages can be used for any delay, including delays caused by the contractor, their subcontractors, or external factors such as weather events.
Calculating Liquidated Damages
The first step in calculating liquidated damages is to determine the rate that will apply. This rate is usually set out in the contract and is calculated on a daily or weekly basis. For example, if the contract price is $1 million and the liquidated damages rate is $1,000 per day, the contractor would be liable for $1,000 for each day that they are delayed.
The next step is to determine the period of delay. This can be calculated from the date that the works were due to be completed to the date that they were actually completed. The contract may also set out a fixed period of time for completion, known as the “contract period”. If the works are completed within this period, there will be no liability for liquidated damages.
Once the rate and period of delay have been established, the liquidated damages can be calculated. For example, if the contractor is delayed by 10 days and the daily rate is $1,000, the liquidated damages would be $10,000.
Caps on Liquidated Damages
Many construction contracts will include a cap on the amount of liquidated damages that can be claimed. This is usually expressed as a percentage of the contract price, such as 10% or 20%. For example, if the contract price is $1 million and the cap on liquidated damages is 10%, the maximum amount that can be claimed is $100,000.
Extensions of Time
In some cases, the contractor may be entitled to an extension of time. This can be granted if the delay was caused by an event outside of the contractor’s control, such as severe weather. If an extension of time is granted, the liquidated damages will be adjusted accordingly.
Liquidated damages are an important tool for employers in construction contracts in Australia. They provide a predictable and quantifiable remedy for delay and are often used to incentivize contractors to complete the works on time. To calculate liquidated damages, it is important to determine the rate and period of delay and to take into account any caps or extensions of time that may apply. A professional can help ensure that this information is presented in a clear and concise manner for readers.