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Establishing The Amount Of Liquidated Damages

Thursday, June 09, 2005 03:00 pm

 

There is no simple or universal formula for determining the daily rate of liquidated damages for late completion of a construction project. The basic rule is that liquidated damages are enforceable if actual damages would be hard to measure (almost always the case with late completion of construction) and the daily rate represents a reasonable estimate, at the time of contract formation, of what the actual damages might be. Vrgora v. Los Angeles Unified School District, 200 Cal.Rptr. 130 (Cal.App. 1984); CCM June 1984, p. 3.

No Justification Required

Not all courts require project owners to justify their liquidated damages rate in this manner. A Florida court upheld an assessment of $2,500 per day with no evidence of how actual damages had been forecast at the time of contract formation. The amount was stipulated in the contract which the contractor had voluntarily signed. That was the end of the matter. Public Health Trust of Dade County v. Romart Construction, Inc., 577 So.2d 636 (Fla.App. 1991); CCM July 1991, p. 6.

A New York court allowed a public project owner to enforce a "public convenience"clause in a contract for improvements to a wastewater treatment plant. Because the $500 per day compensated the public for its inconvenience and did not represent financial damages incurred due to late completion, the amount was not subject to the basic rule for enforceable liquidated damages. C. O. Falter Construction Corp. v. City of Binghamton, 684 N.Y.S.2d 86 (N.Y.A.D. 1999); CCM May 1999, p. 3.

Amount Justified

In most cases, the project owner can be required to justify the determination of the daily rate of liquidated damages. One project owner demonstrated that a daily rate of $600 in a highway contract was based on historical extended field overhead costs, primarily salaried personnel and vehicles. The amount was enforceable. Reliance Insurance Co. v. Utah Department of Transportation, 858 P.2d 1363 (Utah 1993); CCM January 1994, p. 3.

Similarly, another project owner justified liquidated damages of $460 per day [...]

 
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