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How to determine liquidated damages over construction delays

What happens when your construction project doesn't go according to contract? You know that you're losing money every day that the project is delayed.

Quite often, the liquidated damages provision in your contract can move at least some of your losses to the builder or contractor involved in the delay. These are the damages you can charge against the money you still owe the contractor once the project is finished. They're usually represented in your construction contract as a daily charge. Each day that the project stays incomplete after its projected finish is a day you can deduct.

To calculate the amount of damages you can recover, you generally follow this method:

Determine the contractual date of completion of the project

Did your contract specify an actual completion date for the project or did it estimate the days of operation? You'll have to determine exactly how far past the projected completion date the project ran.

You also need to determine if you are entitled to shift cumulative damages over to the contractor based on incomplete milestones. That can permit you even greater financial relief.

Keep in mind that change orders may have shifted the completion date several times. You may have also constructively shifted the due date by certain acts or failures to act in accordance with the agreement. It may not be a simple job to figure out exactly when the project was truly due to be finished -- which is what usually leads to a full-blown contract dispute.

You have to determine the date of substantial completion

Substantial completion occurs whenever you have constructive use of the building or structure for its intended purpose -- even if you don't start using it that way. Work may not be final. It isn't unusual for contractors and owners to differ in opinion about when a project is "substantially" complete and ready for its basic purpose.

Because owners and contractors often dispute these two dates and there's seldom a clear-cut answer, it's wise to get some legal advice on the matter before you act.

Source: FindLaw, "The Estimation of Construction Contract Liquidated Damages," accessed April 13, 2018

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