Liquidated Damages (LDs): Antiquated & Ineffective. Use (DLs) instead.

January 13, 2018

(not a lawyer, not giving legal advice, etcetera)

 

 

Have you ever had the thought "I wish I had LDs on this project." If you're an Owner you might have if you build a lot; if you're an architect: I know you have. The problem is, liquidated damages aren't defined properly. They are defined loosely as "payment of a specified sum from one party to another in case of breach of contract." They should be defined: "money added to projects costs for which I can't prove and probably won't pursue anyway." I could just stop right there, and am very tempted...

 

 

Liquidated damages just aren't realistic in today's world. For one they're almost impossible to prove, unless you're building a residence hall on campus. In my experience you have to show real loss of income, like, say, "the students are coming tomorrow and we have nowhere to put them."

 

Second they tend to just add money to the project. Most contractors will simply add some money to the bid to cover potential losses. Whats the worst that could happen? If they go over: fine. If they finish on time: more profit. If they finish early: more profit and less overhead. And no matter the situation the Owner paid a premium for a building. 

 

Lastly they probably won't be pursued. The Owner will be so happy the ulcer will go away and the Architect can now bill 100%. The Architect was really only using LDs as a warning when the schedule slipped anyway. No one takes them seriously.

 

There is a reasonable solution to ensure a team approach and avoid DeLays, or DLs:

 

DLs require all parties to adhere by, and also benefit from, a timely project:

 

Schedule: Get a schedule every week. Without question. Don't talk about it at the meeting either. Study it later and comment. It's way too much information. Get a quick Actual/Scheduled percentage complete at the meeting and move on. If your'e over 14-30 days on larger projects or 7 days on small projects, the next thing in your inbox should be a recovery schedule.

 

Billing: Everyone gets paid to match the actual percent complete, in 5 business days, no exceptions. If you pay quickly, they'll finish quickly, especially small contractors and designers. 

 

Incentive: Offer an incentive to finish early. In other words, the opposite of LDs. Move the scale back to the middle where it belongs.

 

Lastly, and dolorously, have a realistic schedule. If you pay a contractor and designer to build and draw you a building, ask them how long it should really take. Even better, take bids with different finish dates and see how much it costs, on paper.

 

If everyone's getting paid, there's an incentive to finish early, the schedule is on paper weekly, and there's no need for animosity, you'll finish on time. Get rid of LDs, they don't work.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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