In a state like Florida that is a major hub for construction work, liquidated damages are one of the most important topics to understand. They have a major impact on the profitability of the job for the construction company.
Liquidated damages
Liquidated damages are a part of construction contracts designed to keep the project on course to finish by the agreed date. If the project is not finished in time, then the costs from that time forward make up the liquidated damages. They are knocked off the price of the project, lowering the profit for the construction company. Liquidated damages are an incentive to ensure the construction company keeps to the schedule. Since construction is a business in which the profit margins are low and costs are high, it doesn’t take many days of liquidated damages to turn a project into a money-losing one.
Avoiding liquidated damages is a key part of getting a project completed. The owner and the company agree to a date at the beginning at which the project will be substantially complete. There can still be finishing touches and other extras to complete, but all of the major work has to be done then to get the liquidated damages clause to stop. Sometimes, whether a project is substantially complete and whether liquidated damages applies must be settled in construction litigation, which can be costly but less expensive than the damages.
Liquidation damages is a part of doing business in construction and a way to keep projects to a certain schedule, but they also open the door to issues that might need to be settled in court.
