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Steps to prevent financial and reputational construction delays

When scheduling a construction project in Idaho, the contractor and the client agree upon a budget and schedule. However, there are instances when a project exceeds the budget or timeline, potentially impacting the customer’s reputation and financial situation.

Liquidated damages and construction

Liquidated damages refer to funds set aside to cover expenses incurred each day a construction project surpasses the agreed-upon completion date. These funds typically deduct from the amount owed by the owner to the contractor for their work. This can affect the contractor’s profit margins.

Eligibility for liquidated damages

According to commercial construction law, an owner must meet specific legal and procedural requirements to be eligible for liquidated damages. The purpose of liquidated damages is to compensate the owner for actual or perceived losses due to project delays, not to penalize the contractor for late completion. The contractor and the owner need to agree on the compensation amount paid by the contractor for each day of project delay before project commencement. Additionally, they need to outline qualifying provisions that must be satisfied before enforcing these damages.

Determining fault

For construction projects to apply liquidated damages, the parties must establish who is responsible for the delay. Moreover, they must determine whether the delay is reasonable based on predetermined criteria. Delays can arise due to contractor errors, lack of action from the owner, or a combination of both. Identifying the party at fault determines liability for liquidated damages, especially if the dispute escalates to court.

When appropriately structured, liquidated damage provisions ensure that the contractor and the owner are satisfied with the project’s progress and completion date. Prolonged legal disputes over deadlines consume significant time and resources. Consequently, adhering to the contract is beneficial to avoid such scenarios.