Understanding liquidated damages in a construction contract

On Behalf of | Jun 28, 2021 | Construction Litigation

If you’ve worked with a contractor in Texas, you may have come across something referring to liquidated damages. Liquidated damages are the compensation that is owed to a client when a contractor doesn’t meet timeline requirements.

Liquidated damages is based upon estimated real costs and loses and varies from project to project. Because of this, there isn’t a one-size-fits-all clause for liquidated damages. Determining what a person may be owed in liquidated damages will depend on his or her specific contract.

How do contractors determine liquidated damages?

A lot of contractors determine liquidated damages purely on the timeline. If they miss their deadline, there will be a monetary rate multiplied by a daily or weekly time beyond the completion date. Oftentimes, this is only the starting point for determining liquidated damages.

At the end of the day, liquidated damages should include anything that the client can be reimbursed for. For example, if the client is paying storage fees or has suffered a loss of income due to the project not being completed on time, this is taken into consideration when calculating liquidated damages. Examples would be things like:

  • A rental property not being available on time, resulting in a delay in tenants moving in or loss of tenants
  • A business shop or storefront being closed for longer than expected, resulting in a loss of income
  • Equipment rental costs that have to be extended due to missing the deadline

When can you claim liquidated damages?

Oftentimes, factors resulting in liquidated damages are determined up front and are taken out of the project price or what the contractor is getting paid. In rare cases, liquidated damages go to court for breach of contract, and the court must determine if the client actually suffered all those losses. When seeking liquidated damages, reach out to an attorney with experience in construction litigation.