It pays to know exactly what is the language in any construction contract regarding potential liquidated damages costs, but negotiating or battling (if necessary) charges flowing from those clauses will always require proof.
That was among the key messages lawyers Bailey Harris and Jarrod Sundmark, who specialize in construction law at Thompson, Dorfman, Sweatman, delivered to a full house of MHCA members attending a January 21 seminar on the law of liquidated damages.
Liquidated damages are delay claims, based on an agreed and pre-determined amount of money one party pays when in contractual breach. The delays have to result from the fault of the contractor; typically, the charges are daily, up to a maximum.
“Paper, paper, paper” was the common refrain during the seminar, which discussed the conditions and circumstances that determine whether liquidated damages apply or can be challenged and mitigated.
Contractors should document on paper (not text messages) all relevant factors and discussions contributing to the delay (force majeure or weather) or dispute regarding deficiencies or scheduling, Harris stressed
Contracts need to be read carefully, as well as supplementals and how they can change the rules. Creating a “cheat sheet” of the important details of a contract – such as the rules to give notice of delay – for project managers to follow is a good habit.
And don’t rely on observations such as “excessive rain” but provide Environment Canada precipitation records, to back up any challenge.
Sundmark said for a liquidated damage to be enforceable, compensation demand must be based on a reasonable and genuine pre-estimate of actual damages, calculated at the time of signing the contract. The damage must be tied to the best estimate of where the project owner would be if the breach hadn’t happened.
The liquidated damage clause cannot be punitive in nature and, in dispute, it is the owner’s obligation to show the pre-estimate, and that the damage compensation is reasonable.
While courts are reluctant to interfere in a contract two parties agreed upon, they will not enforce something that is purely punitive.
The seminar was the first of three planned with TDS Law this winter. The next is scheduled for February 26 on tendering and procurement; a seminar on working with MTI contracts is slated for March, date to be confirmed.
Please watch for notice to register.
