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What are liquidated damages in a construction contract?

Idaho construction projects do not always go according to plan. Sometimes projects can be set back for a number of different reasons. For those who are funding the project, these delays have a ripple effect in the form of extra project cost, late starts and missed business opportunities. While some delays are unavoidable, others can be blamed on the contractor. When this happens, liquidated damages can be awarded.

What are liquidated damages?

Commercial construction law defines liquidated damages as a specified level of compensation owed to one party of the contract when the other party does not meet the timeline requirements. In the construction industry, the amount of liquidated damages is based on an estimate of what the real losses would be for the injured party. The liquidated damages clause is included in the construction contract before work ever gets underway. It ensures the financial stability of the company paying for the construction.

What are the benefits of a liquidated damages clause?

The whole point of a liquidated damages clause is to protect the finances of the company funding the project. It also helps to ensure that the project will most likely be completed within the set time frame that was agreed upon by both parties at the project’s inception. When a liquidated damages clause is put into a construction contract, it reduces the likelihood that the parties will end up in a lengthy litigation process. This is preferable for both sides because they can save a lot of time and money on legal fees.

All companies looking to hire construction firms should know about liquidated damages. This specialized clause helps to solidify the commitment of the contractor to complete their work on time, and it gives the party funding the effort some shielding from unexpected losses. It’s always a good idea to hire an attorney to formulate the contract.