Accept Liquidated Damages
In most instances, the best strategy for contractors is to accept the inclusion of a liquidated damages clause, but to actively negotiate the language included in the clause to expressly exclude delays caused by supply-chain disruptions or other causes beyond the contractor’s control.
Liquidated damages clauses can benefit contractors if they are thoughtfully drafted. First, liquidated damages provisions should be expressly subject to a well-drafted force majeure clause (or other provisions addressing delays in the construction contract) and toll any delays allowed by the declaration of force majeure by the contractor (as discussed in more detail below).
Second, the language should be narrowly tailored so that liquidated damages are only triggered for delays that are caused by the contractor and exclude delays beyond the control of the contractor that are caused by market conditions, the owner or by other project parties such as design delays caused by architects or engineers or delays that are caused by sub-contractors.
In the case of specialty contractors, language that obliges the specialty contractor to pay for any delays they cause should be included not only in the contract with the owner, but also in the specialty contractor agreement.
Third, all liquidated damage provisions should include language stating that liquidated damages shall be the sole and exclusive remedy to the owner for delays caused by the contractor, and that liquidated damages are in lieu of any other direct, indirect or consequential damages that may flow from delays caused by the contractor.
Finally, any delays that trigger liquidated damages should be tied to the critical path of the project and should not be imposed unless the delays affect substantial completion of the project and not the final completion of the project. In other words, delays that can be addressed and mitigated without delaying key milestones should be expressly excluded.
