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4 11月 2022
Insight
London
This note sets out some of the key legal and practical issues to be addressed by an employer who is seeking to deduct delay liquidated damages from sums due to a contractor.1
| A. The contract |
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Does the contract specify a due date for completion from which delay liquidated damages are to be calculated? |
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Does the contract provide for any "grace period" between the planned completion date and a later date from which the employer is entitled to start deducting delay liquidated damages? |
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Does the contract expressly entitle the employer to deduct delay liquidated damages from sums due to the contractor?
If the delay liquidated damages provisions in the contract are silent on this point, the payment provisions elsewhere in the contract may permit the employer to make such deduction.
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Does the contract specify the applicable rate or sum of delay liquidated damages?
If not, the contractual mechanism may be deficient and this may affect the employer's entitlement to delay liquidated damages.
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Does the contract require the employer to wait until completion has actually been achieved before deducting delay liquidated damages, or does it permit the employer to start deducting delay liquidated damages as soon as the planned completion date has passed? |
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Does the contract provide for sectional completion? If so, does it also permit the sum of delay liquidated damages to be divided according to sections or specify separate sums for each section? |
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Does the contract provide for partial takeover? If so, does it also permit the sum of delay liquidated damages to be proportionately reduced to reflect the part of the works being taken over? |
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Does the contract include any caps on the contractor's liability for delay liquidated damages? What (if any) consequences does the contract provide for where the cap is reached (e.g. termination)?
If the contract includes caps, the employer's claim for delay liquidated damages will be limited accordingly. |
| B. The works |
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Has the contractor actually failed to complete the works (or section) by the planned completion date?
The employer will not usually be entitled to deduct delay liquidated damages where the contractor has failed to proceed in accordance with the programme or in anticipation of the contractor missing the planned completion date.
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Where the contractor is required to complete the works within a specified period of time following the issuance of a "notice to proceed", was such notice actually issued?
If no notice was issued, the employer may not be entitled to delay liquidated damages on the basis that it is not possible to determine the due date for completion from which delay liquidated damages are to be calculated.
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| C. The employer (and engineer/contract administrator) |
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Has the employer or engineer/contract administrator issued all necessary certificates (e.g. a non- completion certificate) and/or notices (e.g. notice of intention to withhold or notice of claim), which are stated in the contract to be preconditions to the employer's entitlement to deduct delay liquidated damages? Do the relevant certificates remain valid?
If the issue of a non-completion certificate is a precondition to the employer's entitlement to delay liquidated damages, the employer may not be entitled to delay liquidated damages if such certificate was issued but subsequently cancelled following an extension of time being granted (see Octoesse LLP v Trak Special Projects Ltd [2016] EWHC 3180 (TCC)).
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Has the employer satisfied all other conditions precedent to deducting delay liquidated damages under the contract? |
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If the Housing Grants, Construction & Regeneration Act 1996 applies, does the relevant payment notice/pay less notice reflect the sum of delay liquidated damages to be deducted from the payment due to the contractor and the basis on which the sum is calculated?
If not, the employer will be required to pay the contractor without any deductions for delay liquidated damages, and will be required to wait until subsequent interim payments to deduct delay liquidated damages or challenge the sum to be paid in adjudication or formal proceedings
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Has the employer expressly or impliedly waived its right to deduct delay liquidated damages? |
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Has the employer caused any delay to the planned completion date? If so, does the contract expressly permit the planned completion date to be extended to account for employer-caused delay, and has such employer-caused delay been reflected in any revised completion date from which delay liquidated damages are to be calculated? |
| D. Termination of the contract |
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Where the contractor was in delay, but the contract was terminated before it was able to complete the works:
In Triple Point Technology, Inc. v PTT Public Company Ltd [2021] UKSC 29, the Supreme Court overturned the Court of Appeal's earlier decision and confirmed the previously held 'orthodox view' that liquidated damages will apply to the period of delay in completing the works up to the date of termination of the contract. For the period after termination, general damages for breach of contract would apply (subject to the wording of the particular contract).
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1 The points set out in this note will also be relevant to any contractors seeking to deduct delay liquidated damages from sums due to subcontractors.
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Legal Notice
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