Liquidated Damages – Fire and Brimstone or Useful Club?
Dear YouDig?
Our plant expansion must be completed on time. We need a club to keep the design builder’s feet to the fire. Do liquidated damage provisions really work and hold up under scrutiny?
-Cave Man
Dear Cave Man,
You better believe it, Cave Man. While the project proceeds, keep the club in your hand as a constant reminder of the possibility you might swing: a clear motivator. Liquid Damages are not a stone-age concept. If the deadlines are not met, courts and arbitrators definitely enforce liquid damage clauses; in this case, you’re right to take a swing and blow some steam. Actual damages may be difficult to ascertain–it’s often a big mess after all. The liquid damages you seek to assess must be reasonably related to actual damages-don’t get greedy, and the parties must each have clearly contracted for liquid damages. (How about we all initial right ‘here.’) But be warned if the clause smacks of a penalty, you will not collect.
–YouDig?