Liquidated Damages

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Contract Law & Management Assignment 2: Liquidated Damages
A contractor has an obligation to the employer to complete the work on time. Explain the contractor’s liability in the event of failing to fulfil this obligation, with reference to either JCT SBC 05 or JCT IF 05.

It should be noted that the clause references contained within this essay make specific reference to those contained in the Joint Contracts Tribunal Standard Building Contract 2005 only.

Time and completion are complex areas of construction law and often give rise to a number of legal and practical issues (Tangy, 2010). A contractor that fails to complete work on time exposes themselves to a host of contractual difficulties where financial remedies are frequently imposed. Certainly the construction industry as a whole and specifically where a project is running behind programme and has ‘missed the boat on the completion date’ has always been perceptible to the negative connotations of extensive legal proceedings, hefty court cases and unresolved conflicts. Before considering the extent to which a contractor can be held liable for failing to complete works on time, it is important to establish what is actually meant by the term ‘completion’. Salmon LJ in the case of J Jarvis & Sons Ltd V Westminster City Council (1969) stated that completion for all practical purposes is allowing the employers to take possession of the works and use them as intended. In other words, the works are sufficiently complete for the purpose for which they were designed (Nestor, 2004). However it is the contract administrator that certifies when a project has reached practical completion and with each construction project proving to vary largely in details, reaching a state of practical completion is no generic state. As such, it can be argued that completion is a matter of observation, and therefore interpretation (Nestor, 2004). In terms of adjusting the completion date, if the completion date is moved forward in time a contractor is not expected to comply with the original date as set in the contract particulars. Specifically, clause 2.28.6.3 makes it evident that no matter how much work is omitted by the architect, through use of clause 3.14, the contract period cannot be shortened in an attempt to force the contactor to complete early.

It is now fundamental to illustrate the effect of ‘Liquidated Damages’ concerning a contractor delivering a project that is beyond the specified completion date and therefore in the eyes of the employer and the contract, late. Liquidated damages are a remedy at the heart of a project that has overrun and are described as adapted from Lal as a genuine covenanted pre-estimate of damages judged at the time of making the contract, not at the time of the breach (Lal, 2009). Simply put, if a contractor fails to complete work on time then he will hand over a fixed, predetermined amount of damages (money) for every day, week or set period as defined in the contract that he is late until the works are finished to the state described in the contract documents. Nestor describes three factors relating to liquidated dames concerning their recovery and the dependence on these three factors. Firstly, the works should have been completed by a particular date. Secondly, that they should have been completed on an earlier date and thirdly, that there is a pre-agreed stipulated sum of money that forms a genuine pre-estimate of the loss that is likely to flow from the breach (Nestor, 2004). Generally, points one and three are of particular note as they form the very essence of liquidated damages. In terms of the actual amount payable to the employer, MCGregor takes an interesting approach stating that the normal measure of damages for failing to complete a building by the time required by the contract should be the value of the use of the building during the period of delay, the value generally being taken as the rental value (McGregor, 2012). It...
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