Liquidated Damages – Fire and Brimstone or Useful Club?
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?
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.