What are liquidated damages for a delay in construction? The idea of liquidated damages refers to the money paid by the party—in this case, the construction worker or company—who has failed to fulfill the terms outlined in a contract. This, of course, assumes that the contract was made in good faith, and is valid by all legal standards.
What is a penalty? A penalty in this case, as in any contractual agreement, is the money that the contract-breaking person(s) will pay. The word penalty does not refer to the actual losses, per se, but to a sign of the failure itself—a fine, much like a fine for a library book or traffic ticket.
In the United States, there is some question as to the courts’ handling of Liquidated Damages cases; the courts do not always use the Liquidated Damages Clause in the same way. The difficulty seems to arise because sometimes the actual losses because of the construction delay is sometimes much smaller than the amount stated in the clause; but sometimes, the actual loss is much greater.
In England and Australia, the courts tend to side with the contracts, and to uphold those as self-contained, binding documents. They, in turn, will uphold the individual contract’s clauses instead of considering the tangible loss.
Here is a list, thanks to Reuters, of some notable cases that have dealt with the issue of liquidation and delay in contract:
The Galoo Case (UK): While not a construction case, the Galoo case dealt with the binding nature of two opposing parties’ failures to deliver a service and to pay.
The St. Jones College Case (Australia): This case was a bit tricky, as the contractor had a previous contract which seemed to result in the construction delay.
The Utley James Case (US): The US courts in this case found the contractor not legally bound, and legally not responsible for the delay.