RICS Damages for Delay to Completion

Damages for delayto completion

RICS Practice Standards, UK

1st edition, guidance note

Damages for delay to completion1st edition, guidance note

This guidance note introduces the subject of damages for delay tocompletion by looking at the general principles including areas suchas law; reasons for introduction within a contract; amounts ofdamages, and how sums are deducted, certified or released.

It then focuses on how the standard forms of contract deal withdamages, concluding with a review of common issues andcommonly occurring problems.

Guidance is given for each of the main groups of contracts and theforms in most regular use within those groups, under the followingheadings which map to the Assessment of ProfessionalCompetence (APC):

General principles (Level 1 Knowing) Practical application (Level 2 Doing) Practical considerations (Level 3 Doing/Advising)

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GN 88/2011RICS QS & Construction Standards RICS QS & Construction Standards (the Black Book)

Damages for delay to completionRICS guidance note

1st edition (GN 88/2011)

Acknowledgment

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Contents

RICS guidance notes 1

1 Introduction 2

2 General principles (Level 1 Knowing) 3

2.1 Method of calculation 42.1.1 Calculation examples 42.1.2 How they are deducted 42.1.3 Treatment following extension of time 5

3 Practical application (Level 2 Doing) 6

3.1 Contract specific clauses 63.1.1 JCT Contracts 93.1.2 NEC3 Engineering and Construction Contract 103.1.3 FIDIC Red Book and Orange Book 113.1.4 Contracts not reviewed 13

4 Practical considerations (Level 3 Doing/Advising) 14

4.1 Common issues 144.1.1 Challenge of sum levied 144.1.2 Delay in certification of completion 144.1.3 Other issues 14

DAMAGES FOR DELAY TO COMPLETION | iii

Acknowledgements

RICS would like to thank the following for their contributions to this guidance note:

Lead author

Graham Seage FRICS (Mace Limited)

Working Group

Chair: Andrew Smith (Laing ORourke)Alpesh Patel (APC Coach Ltd)Christopher Green (Capita Symonds Ltd)David Cohen (Amicus Development Solutions)Duncan Cartlidge (Duncan Cartlidge Associates)Jim Molloy (Department of Health, Social Services and Public Safety NI)John G Campbell (BAM Construction Limited)Kevin Whitehead (McBains Cooper Consulting Limited)Michael T OConnor (Carillion Construction Limited)Michelle Murray (Turner & Townsend plc)Roy Morledge (Nottingham Trent University)Stuart Earl (Gleeds Cost Management Limited)

iv | DAMAGES FOR DELAY TO COMPLETION

RICS guidance notes

This is a guidance note. It provides advice toRICS members on aspects of their work. Whereprocedures are recommended for specificprofessional tasks, these are intended torepresent best practice, i.e. procedures whichin the opinion of RICS meet a high standard ofprofessional competence.

Although members are not required to follow theadvice and recommendations contained in thenote, they should note the following points.

When an allegation of professional negligence ismade against a surveyor, a court or tribunal is likelyto take account of the contents of any relevantguidance notes published by RICS in decidingwhether or not the member had acted withreasonable competence.

In the opinion of RICS, a member conforming tothe practices recommended in this note shouldhave at least a partial defence to an allegation ofnegligence if they have followed those practices.However, members have the responsibility ofdeciding when it is inappropriate to follow theguidance.

Alternatively, it does not follow that members willbe found negligent if they have not followed thepractices recommended in this note. It is for eachsurveyor to decide on the appropriate procedure tofollow in any professional task. However, wheremembers do not comply with the practicerecommended in this note, they should do so onlyfor a good reason. In the event of a legal dispute, acourt or tribunal may require them to explain whythey decided not to adopt the recommendedpractice. Also, if members have not followed thisguidance, and their actions are questioned in anRICS disciplinary case, they will be asked toexplain the actions they did take and this may betaken into account by the Panel.

In addition, guidance notes are relevant toprofessional competence in that each membershould be up to date and should have knowledgeof guidance notes within a reasonable time of theircoming into effect.

DAMAGES FOR DELAY TO COMPLETION | 1

1 Introduction

This guidance note introduces the subject ofdamages for delay to completion by looking at thegeneral principles including areas such as law;reasons for introduction within a contract; amountsof damages, and how sums are deducted, certifiedor released.

The guidance note then focuses on how thestandard forms of contract deal with damages. Alist of the contracts reviewed is included within thetable of contents. For liquidated damages thisincludes how amounts are inserted in the contractand how this is to be deducted or certified.

The guidance note concludes with a review ofcommon issues and commonly occurring problems.

Guidance is given for each of the main groups ofcontracts and the forms in most regular use withinthose groups, under the following headings whichconform to the Assessment of ProfessionalCompetence (APC):

+ General principles (Level 1 Knowing)

+ Practical application (Level 2 Doing)

+ Practical considerations (Level 3 Doing/Advising)

2 | DAMAGES FOR DELAY TO COMPLETION

2 General principles (Level 1 Knowing)

If a contractor is late completing a contract thenthey may need to pay damages for breach ofcontract. The general principle of damages is toreturn the non-defaulting party to the position theywould have been in had the contract beenperformed without breach.

Damages generally take two forms, liquidated orunliquidated.

It is not necessary to agree the level of damages atthe outset and no value for them need be enteredin the contract. They are therefore based on theactual loss of the employer and are known asunliquidated damages. They will need to be provenat the time of the loss. According to the principlesof the law of contract, to succeed in a claim theclaimant would need to demonstrate:

+ the breach of contract caused losses in theamount claimed

+ the loss was not too remote at the time offormation of the contract; and

+ they took reasonable steps to mitigate the loss.

It is generally the standard practice to enter a sumfor daily or weekly delay into the contract prior tosending out the tender documents. A value isstated in the contract and referred to as liquidatedor liquidated and ascertained damages (LAD).

Sectional completion is often contained withincontracts in order that sections of the work can behanded over to the employer rather than waitinguntil completion of all of the works. Generally,contracts containing sectional completion will alsohave liquidated damages applicable to eachsection, however the liability on each section willcease once the relevant sectional completion iscertified.

Liquidated damages are a predefined sum to bepayable in the event of delay beyond thecompletion date and are thus recoverable withoutproof of loss. Most contracts contain clauses forthe deduction of liquidated damages. They allow acontractor to know their liability if they are late andtherefore to budget for the risk of delay and adjusttheir tender accordingly, and they also confirm the

remedy available to the employer. Therefore,liquidated damages may be preferred by bothcontractors and employers. Where unliquidateddamages are applicable, they may be subject tolengthy calculation and agreement, and will havethe opposite certainties for contractors andemployers than those noted for liquidateddamages.

Liquidated damages are a stated sum in thecontract and are normally deducted irrespective ofthe actual employer loss as a result of the delay,but must be a genuine pre-estimate of the loss atthe time of entering the sum within the contractdocuments, rather than a penalty.

Most contracts have start and completion dates. Acontractor will be liable for damages if they fail tocomplete within the time-scale stated within thecontract, which may be amended (Extension ofTime/Extension to Completion Date). Where no timeperiod is specified (not recommended) a contractorcan complete within a reasonable time. If nocompletion date is set by the contract, time is atlarge and damages cannot be deducted. Thereforecare should be taken when entering the possessionand completion information into contracts, whetherby specific dates or by general durations. Acontractor will not be liable for damages for theperiod where an extension of time is granted.

Some contracts may require the issue of NonCompletion Certificates. These may be a conditionprecedent for the deduction of damages. Pleaserefer to section 3.1.1 for more detail.

If completion is certified with outstanding works, acontractor is not liable for delay damages whilstthey undertake the outstanding works. Laterdiscovery of defects will not change the status ofthe Completion Certificate.

It should also be noted that some contracts containan early completion bonus. This may or may not beof use to the employer as they may not wish tohave the project early. For example, if theconstruction project was a new office building, theemployer may tie in practical completion a fewmonths prior to the expiry of a lease on an existingbuilding. Early delivery may therefore burden them


with additional cost. As an example, in the NECEngineering and Construction Contract, theemployer may state the early completion bonusoptional clause in the contract data.

If the delay is so great, the employer may have theright within the contract to terminate. It is advisableto review the contract specific provisions relating tothe reasons for, and the process of, termination andto seek expert advice on this matter. Also the affecton the ability to recover delay damages upontermination should be reviewed, as the employermay only be able to recover the additional costs ofcompleting the works.

2.1 Method of calculation

It is a key factor of liquidated damages that theymust be a genuine pre-estimate of loss and theycannot be a penalty. Stipulated sums, which areconstrued as a penalty, will be unenforceable andtherefore the employer will be left to claimunliquidated damages. The courts may deem thedamages a penalty if they appear to be a deterrentrather than a method of compensating the non-defaulting party for the breach.

It is therefore recommended that calculations forliquidated damages are thoroughly considered bythe employer and the quantity surveyor/projectmanager and a detailed record of the final valueretained in case they are challenged at a later date.Care should also be taken when calculating thedamages applicable to each section, whereappropriate.

2.1.1 Calculation examples

Damages can be calculated in a number of ways.

For the construction of a hotel, damages could becalculated on loss of revenue from rooms and otherfacilities within the hotel. The person calculatingdamages is advised to consider issues such asoccupancy levels, likely room charge rates, incomefrom restaurants, leisure facilities, etc. and coststhat may be saved as a result of delay, e.g. utilityconsumption costs. This list is by no meansexhaustive. The calculation cannot be based purelyon revenue.

For the construction of an office block, liquidateddamages may be calculated on the cost of leasingalternative accommodation if the construction is for

the owner occupier. Where the office building islikely to be leased, the damages would becalculated on likely lease incomes similar to theexample for the hotel above.

Other items for consideration are continuingconstruction supervision costs and fees,accommodation costs, finance costs, etc. Againthis list is not deemed to be exhaustive.

It is, however, more difficult to calculate damagesfor civil engineering projects such as roads andsewage treatment facilities. It may be difficult to puta financial value on the loss incurred from nothaving a road upgrade available; it is more likely tobe a matter of bad publicity for the road owner.

It may also be more difficult for a contractor tocalculate the level of damages to apply within asubcontract. The contractor will need to consider ifthe subcontractor being late will have an impact onother trades and/or have an impact on the overallcompletion of the project. The damages may thenbecome disproportionate to the value of the workscovered by the subcontract. Contractors may,therefore, choose to enter into subcontracts withunliquidated damages.

2.1.2 How they are deducted

Please refer to section 3.1, as different contractsdeal with the deduction of damages in differentways once late completion has occurred. In someinstances, this is included within the certificateissued by the contract administrator or projectmanager to the employer and contractor. However,other contracts deal with this by issuing awithholding notice from the employer, after theaforementioned certificate has been issued.

When considering the provisions of any contract, itis recommended that notice is given to thecontractor in accordance with the contract and theHousing Grants, Construction and Regeneration Act1996 (and any subsequent amendment). Attentionis also drawn to section 2, in that it may be acondition precedent, that prior to deductingdamages from monies due other notices areissued, such as a Non-completion Certificate.

Some contracts will also limit the contractorsliability for damages and this should also be takeninto consideration when administering theprocedures for recovery of damages,


2.1.3 Treatment following extension of time

If an extension of time is awarded late in acontract, i.e. after the late completion of the worksor a section by the contractor, the level of damagesdeducted must be reassessed at the next interimpayment assessment/certificate. Interest maybecome due on payments incorrectly taken butthis will depend on the provisions contained withinthe contract, if any.


3 Practical application (Level 2 Doing)

3.1 Contract specific clauses

The following sections contain the detail of thedamages for delay to completion provisions withineach of the contracts, but for ease of reference,this has also been summarised in the followingtable. It is recommended that the precise wordingof the contract is reviewed, especially where olderor later versions of the contract are being used orwhere the employer has amended the standardterms and conditions.


Contract

Term

inology

Entry

into

Contract

Sec

tiona

lCompletion

Dam

ages

Cap

onLiab

ility

How

arethey

Ded

ucted?

Other

Commen

ts

Stand

ard

Building

Con

trac

t,Interm

ediate

Building

Con

trac

t,Prim

eCos

tBuilding

Con

trac

t

Liquidated

dam

ages

Con

trac

tpartic

ulars

Yes

Nosp

ecificca

pfordelay

dam

ages.

May

reque

stpaymen

tor

ded

uct

from

sumsdue

totheco

ntractor.

Non

-com

pletio

nCertificate

mustbeissued

asmust

appropria

tepaymen

tno

tices.

See

noteson

sche

dules

totheco

ntract

inthedetail

below

.

JCT

Man

agem

ent

Building

Con

trac

t

Liquidated

dam

ages

Con

trac

tpartic

ulars

Yes

Nosp

ecificca

pfordelay

dam

ages.

May

reque

stpaymen

tor

ded

uct

from

sumsdue

totheco

ntractor.

Non

-com

pletio

nCertificate

mustbeissued

asmust

appropria

tepaymen

tno

tices.

Has

addition

alclau

sesfor

dea

lingwith

liquidated

dam

ages

intheworks

contracts.

JCTDesignan

dBuild

Con

trac

tLiquidated

dam

ages

Con

trac

tpartic

ulars

Yes

Totalliability

doe

sno

tap

plyto,or

isno

taffected

by,

LDprovision

s.

May

reque

stpaymen

tor

ded

uct

from

sumsdue

totheco

ntractor.

Non

-com

pletio

nCertificate

mustbeissued

asmust

appropria

tepaymen

tno

tices.

JCTMinor

Works

Liquidated

dam

ages

Con

trac

tpartic

ulars

No

Nosp

ecificca

pfordelay

dam

ages.

May

reque

stpaymen

tor

ded

uct

from

sumsdue

totheco

ntractor.

Noprovision

forpartia

lpos

sessionan

dNon

-co

mpletio

nCertificateis

notrequired.


Contract

Term

inology

Entry

into

Contract

Sec

tiona

lCompletion

Dam

ages

Cap

onLiab

ility

How

arethey

Ded

ucted?

Other

Commen

ts

JCT

Man

agem

ent

Works

Con

trac

t

Dam

ages

are

unliquidated

N/A

No

N/A

May

reque

stpaymen

tor

ded

uct

from

sumsdue

totheco

ntractor.

Noprovision

forpartia

lpos

session.

NECECC

Optio

nsAto

FDelay

dam

ages

Con

trac

tdata

Part1

Yes

Nosp

ecificca

pfordelay

dam

ages.Th

egu

idan

ceno

teim

pliesthat

the

stan

dardco

ntract

dataca

nbe

amen

ded

toinclud

ethis.

Includ

edin

project

man

agersce

rtifica

teto

theco

ntractor

andtheem

ployer.

Interest

applicab

leif

dam

ages

ded

uctedan

dsubseque

ntlythe

completio

ndateisrevised.

Ifthedelay

dam

ages

optio

nalc

lauseisno

tselected

then

dam

ages

will

beun

liquidated

.

FIDIC

Red

Boo

kDelay

dam

ages

Appen

dix

toTend

erYe

sYe

sinserted

into

Appen

dix

toTend

eras

aperce

ntag

eof

the

final

contract

pric

e.

Con

trac

torshou

ldinclud

ein

applicationan

den

gine

ershou

ldinclud

ewith

ininterim

certifica

te.

Refer

totheco

ntract

whe

retherearemultip

lecu

rren

cies

with

inthe

contract.

FIDIC

Orang

eBoo

kLiquidated

dam

ages

for

delay/liquidated

dam

ages

forthe

works

Appen

dix

toTend

erYe

sYe

sinserted

into

Appen

dix

toTend

eras

aperce

ntag

eof

the

final

contract

pric

e.

Employermay

ded

ucttheam

ount

from

mon

iesdue

.

Iflate,theco

ntractor

may

begivenno

ticeto

complete

with

inasp

ecified

reason

able

timefor

completio

n.


3.1.1 JCT contracts

General

The Standard Building Contract has been reviewedin detail. Other versions of the JCT contracts havebeen reviewed and brief comments are also noted.It is important to check particular wording in acontract, especially when older versions of thecontract are being used.

Standard Building Contract

The contract refers to damages for delay tocompletion as liquidated damages.

The date for completion of the works is stated inthe contract particulars, as are any sections of theworks should sectional completion be required. Thecontract particulars will also include dates forpossession of the site or sections of the site.

The rate of liquidated damages is also stated in thecontract particulars. The employer can choose theperiod to which they are applicable, e.g. per hour,day, week, etc. The same is undertaken for thesections of the works.

There are also provisions within the contract toadjust the completion date.

The architect/contract administrator will issue aPractical Completion Certificate or SectionalCompletion Certificate as necessary. If thecontractor fails to achieve the works or a sectionby the relevant completion date, then a Non-completion Certificate is issued. This isautomatically cancelled if the completion date isthen subsequently revised. A further Non-completion Certificate will be required if PracticalCompletion or Section Completion has not beenachieved by the revised completion date.

The employer may deduct liquidated damages if aNon-completion Certificate has been issued andthe employer has given the appropriate noticebefore the Final Certificate. The notice will statethat for the period of delay, the employer wishesthe contractor to pay damages at the rate in thecontract particulars. An employer can, at their owndiscretion, deduct a lesser amount however theycannot increase the rate. Alternatively, the employerwill deduct this from sums due to the contractor.The contractor may challenge the recovery ofliquidated damages if the notice requirementswithin the contract are not complied with. It is

therefore essential that the specifics of the contractare reviewed, understood and administeredcorrectly.

If the completion date is later amended, thedamages would be recalculated and repaid to thecontractor accordingly.

The employer may take early use of the site orworks and this will have an impact on damagesthat may be deducted. Once this has happened,the architect/contract administrator gives notice tothe contractor stating what become known as therelevant part and the relevant date. The damagesthat can be deducted for a section or the works arereduced by the proportion that the relevant partrelates to that section or the whole of the works.The value of the section is entered in the contractparticulars to assist the calculation for this elementof the contract.

Minor Works

The Minor Works Building Contract has similarprinciples to the Standard Building Contract. Thesignificant variances are:

+ there is no sectional completion provision withinthe contract

+ a Non-Completion Certificate is not required;and

+ there is no provision for partial possession bythe employer.

The contract refers to damages for delay tocompletion as liquidated damages.

The date for completion of the works is stated inthe contract particulars, as is the rate of liquidateddamages. The employer can choose the period towhich these are applicable e.g. per hour, day, week,etc.

There are provisions within the contract to adjustthe date for completion but these are not coveredin further detail in this guidance note.

The architect/contract administrator will issue aPractical Completion Certificate as necessary. If theworks are not completed by the date forcompletion, the employer may recover damages atthe rate stated in the contract particulars. This iseither deducted from monies due to the contractoror recovered from the contractor as a debt. If


deducted by the employer, he must inform thecontractor in writing prior to the date of the issue ofthe final certificate.

If the completion date is later amended, thedamages would be recalculated and repaid to thecontractor accordingly.

Intermediate Building Contract

The provisions for delay damages are as per theStandard Building Contract. However, in Schedule2 Named Sub-Contractors, there are additionalprovisions in respect of liquidated damages in theevent of termination of a named subcontractor.

Design and Build Contract

The provisions for delay damages are as per theStandard Building Contract with the followingexceptions.

There is an additional clause to the StandardBuilding Contract that the total liability of thecontractor does not apply to, or is not affected by,the liquidated damages provisions within thecontract.

Schedule 5, Third Party Rights for Purchasers andTenants, also notes that the contractor shall not beliable to the funder for liquidated damages wherethese have been recovered by the employer.

Prime Cost Building Contract


Schedule 5, Third Party Rights for Purchasers andTenants, also notes that the contractor shall not beliable to the funder for liquidated damages wherethese have been recovered by the employer.

Management Building Contract


Section 5, Works Contracts, has provisions forwhere the works contractors are liable forliquidated damages and how this is recovered fromthe management contractor.

Management Works Contract

This contract is different from the other JCTcontracts reviewed in this guidance note. Thedamages are unliquidated and such damages

include any damages that the managementcontractor is liable to pay to the employer underthe main contract.

Details of the Management Building Contract arecontained within the Schedule of Information and aworks contractor should ensure they are aware ofthe main contract damages prior to submitting theirtender.

Any such sums due to the management contractorare treated as a deduction from the workscontractors gross valuation or recovered as a debt.

There are provisions within the contract to adjustthe date for completion but these are not coveredin further detail in this guidance note.

There is also provision for sectional completionwithin the contract. There is no provision for partialpossession by the management contractor.

3.1.2 NEC3 Engineering and ConstructionContract

The NEC suite of contracts contains a set ofguidance notes and whilst individual NEC optionsare reviewed, a summary of the guidance notes isincluded as an introduction to the principles.

First the contract data must also state that theoptional clause will apply to the contract. The levelof damages is stated in part 1 of the contract data.

If the optional clause is not selected, a sum shouldnot be stated in the contract data.

NEC3 ECC guidance notes

The completion date is entered in the contract datarather than a period for completion of the works.The project manager certifies actual completionwithin one week of achieving this. The completiondate may be changed by compensation events.

Sectional completion can be included within thecontract by selecting optional clause X5 within thecontract data.

Optional clause X6 (bonus for early completion),can be selected and entered in the contract data toincentivise the contractor to complete their worksearlier than the completion date.

Optional clause X7 is selected to include delaydamages within the contract. The NEC guidancerecommends that this is included in mostcontracts.


Unliquidated damages will be applicable if theappropriate selections are not made in the contractdata. As noted in section 2.1of this guidance note,the damages stated should be a genuine pre-estimate of loss.

There is also an option to include low performancedamages within the contract by selecting theappropriate optional clause.

The guidance recommends that the employerkeeps a record of how the damages are calculatedin case they are challenged later in the life of theproject.

If X7 is selected as an optional clause, and nothingis entered in the appropriate section of the contractdata, then it may be deemed that the level ofdamages is nil.

Damages, if deducted, are included within theproject managers assessment under the paymentprovisions contained within the contract. Unlike theJCT, the NEC does not stipulate conditionsprecedent to the deduction of liquidated damages;notwithstanding, to avoid potential dispute it isrecommended that written notice confirming intentto deduct damages is given by the projectmanager.

Where X5 is selected, delay damages will beincluded in the contract data for sections as well asfor the whole of the works.

If the levels of damages are required to be cappedthen this should be entered in the contract data,although this requires alteration to the standardcontract data form and caution is advised.

If an employer uses part of the works prior tocompletion, they are treated as having taken overthat part of the works (there are exceptions to this),and the damages are reduced proportionately toreflect this. The same principle would apply tosections of the work. Please refer to the conditionsfor more details.

Option A

The general payment clause within the contractnotes that the amount due includes amounts to beretained from the contractor, and this should beincluded in the contractors application, if any, andwithin the project managers certificate; thusallowing delay damages to be withheld from thecontractor.

The option clause for delay damages states thatthe contractor pays damages from the completiondate (i.e. the date completion is required as statedin the contract), until the earlier of either completion(i.e. the date the project manager deems the workscomplete), or take over of the works by theemployer.

If damages are deducted/paid and the completiondate is then revised in accordance with thecompensation event clauses within the contract,the employer repays any excess damagesdeducted. However, such payment is subject tointerest for the period for which the incorrectdamages are deducted.

If part of the works is taken over prior tocompletion, the delay damages are reduced for theelement of the works taken over. The projectmanager assesses the proportion of works takenover in relation to the benefit to the employer,rather than any physical area or section of work.The damages are then reduced by the assessedproportion.

Options B F

There is no change to Option A and the generalNEC notes above.

3.1.3 FIDIC Red Book and Orange Book

Red Book (Conditions of Contract forConstruction For building and engineeringworks designed by the employer)

The commencement date will be notified to thecontractor in accordance with the provisions of thecontract. The contractor will then complete theworks within the time for completion. The time forcompletion is stated in the Appendix to Tender as aperiod of days. This will be affected by anyextensions of time granted in accordance withother provisions of the contract.

If the contractor fails to complete the works withintime then they are required to pay delay damagesto the employer for their default. These are alsostated in the Appendix to Tender, as is anymaximum cap on damages. Damages are paid on adaily basis for the period between the time forcompletion and the date stated on the Taking-OverCertificate. The contract clarifies that these are theonly damages due from the contractor and the


levying of damages does not relieve them of thisobligation to complete the works.

It is advisable to note that there are provisions toinsert other damages in the contract regardingfailing to pass tests on completion.

If a Taking-Over Certificate is issued for part of theworks, the delay damages are reduced for theremaining works, assuming they are not deliveredwithin the time for completion. Note that partialtake over is not to be confused with taking over ofa section, where a specific rate of delay damagesmay be entered in the Appendix to Tender for eachsection. The proportion of reduction is calculatedbased on a pro-rata of the value of the workscertified. This will not have any effect in reducingthe maximum liability for damages stated in theAppendix to Tender.

Guidance for the preparation of particularconditions

The contract contains guidance notes as aboveand there is guidance on delay damages in theAppendix to Tender.

This reinforces the point that damages must be agenuine pre-estimate of loss. If there are mixedcurrencies in the contract then the delay damagesshould be clear in the Appendix to Tender, as to thelevel of damages taken in each currency.

Appendix to Tender

The delay damages for the works and also for thesection will be stated here. There is also provisionto allow for the percentage adjustments where thecontract is in multiple currencies. Also themaximum level of damages is to be inserted.

Orange Book (Conditions of Contract for Design Build and Turnkey)

It should be noted that the definitions are sortedinto areas of contract, although there is nodefinition of liquidated damages for delay tocompletion.

The employers representative will issue a notice tocommence within the period defined in theAppendix to Tender after the effective date. This isdefined as the date on which the contract enteredinto legal force and effect. Once issued, thecontractor shall commence design and constructionas soon as is reasonably possible.

The contractor will then complete the works andany sections of the works, including the passing oftests on completion within the time for completion.The time for completion is stated in the Appendixto Tender as a period of days. This will be affectedby any extensions of time granted in accordancewith other provisions of the contract.

If the contractor fails to complete the works or anysection of the works within the time then theemployer may deduct damages from any moniesdue at the rate per day or part thereof. These arealso stated in the Appendix to Tender, as is anymaximum cap on damages. Damages are paid on adaily basis for the period between the time forcompletion and the date stated on the Taking-OverCertificate.

If the contractor is late in completing the works andtherefore damages may be deducted, theemployers representative may give the contractornotice to complete within a specified reasonabletime. Please also refer to the clause on Default ofContractor.

If the tests on completion do not pass a repeatedtest, one option for the employer is to issue aTaking-Over Certificate and the contract price willbe reduced accordingly.

If a Taking-Over Certificate is issued for part of theworks, the delay damages are reduced for theremaining works, assuming they are not deliveredwithin the time for completion. Note that partialtake over is not to be confused with taking over ofa section, where a specific rate of delay damagesmay be entered in the Appendix to Tender for eachsection. The proportion of reduction is calculatedbased on a pro-rata of the value of the workscertified. This will not have any effect in reducingthe maximum liability for damages stated in theAppendix to Tender.

Guidance for the preparation of particularconditions

The contract contains guidance notes as aboveand there is guidance on delay damages in theAppendix to Tender.

This reinforces the point that damages must be agenuine pre-estimate of loss. If there are mixedcurrencies in the contract then the delay damagesshould be clear in the Appendix to Tender as to thelevel of damages taken in each currency.


There is also guidance on wording for the insertionof a bonus for early completion.

Appendix to Tender

The delay damages for the works and also for thesections will be stated here. It will be noted thatthis is expressed as a percentage of the contractprice per day. There is also provision here to allowfor the percentage adjustments where the contractis in multiple currencies. Also, the maximum level ofdamages is to be inserted.

3.1.4 Contracts not reviewed

It can be seen from the three sets of contractsreviewed, that in general, the contracts use similarprinciples:

+ all have provision for deduction of damages(liquidated), although terminology differs

+ the level of damages is entered for a set timeperiod within the relevant section of thecontract

+ delay damages can also be used for sectionsas well as the whole of the works

+ sometimes there is a cap on the amount ofdamages that can be taken

+ the method of payment of damages varies,although in general this is deducted from sumsdue to the contractor

+ some contracts rely on certain certificates ornotices to be given, and notices may berequired to comply with relevant legislation,dependent on the type of project or duration,etc. of the contract; and

+ interest may become payable if damages arededucted and an extension of timesubsequently given.

Please refer to individual contracts if they have notbeen reviewed within this guidance note as theymay vary from the general principles set out above.


4 Practical considerations (Level 3 Doing/Advising)

4.1 Common issues

4.1.1 Challenge of sum levied

Contractors and subcontractors may try tochallenge the amount of damages to be leviedcloser to the time they are deducted rather thanwhen signing the contract. The employer, or in thecase of a subcontract, the contractor, would needto prove that the damages included within thecontract were a genuine pre-estimate of the loss atthe time the damages were calculated.

The contractors challenge will not be successful ifthe employer can demonstrate a genuine pre-estimate and the actual cost of damages incurredby the employer is irrelevant. Likewise, theemployer cannot revisit and increase the level ofdamages deducted if the actual loss suffered is infact greater, therefore liquidated damages would bean exclusive remedy. Refer to section 2.1 for furtherdetail.

If the contractor does not consider the level ofdamages to be reasonable, it can be challengedduring tender negotiations rather than after thecontract has been signed.

Challenges may also arise where there is earlypossession or take over of a part of the work bythe employer. Contracts generally allow for thisproportion of the value of works to be consideredso that full damages are not deducted. Forexample, if the employer took over a part of theworks which was considered to be 40 per cent invalue of the whole project, the damages would bereduced by the same percentage in the event thecontractor completed late.

4.1.2 Delay in certification of completion

Often, at the end of a project, the date ofcompletion or practical completion is subject tosome debate. In practice, the date of achievingpractical completion is sometimes agreed andformalised some time after the actual eventoccurred. There may also be a situation where the

completion date has not been fixed, as extensionof time entitlements may still be in discussion. Thismay result in damages being deducted, which willbe recalculated and deducted, or refunded, asappropriate at the next certificate, once completionand/ or the extension of time is agreed. This mayentitle the contractor to a claim for interest inaccordance with the particular contract conditions.

4.1.3 Other issues

If the relevant section of the contract is left blankthen unliquidated damages will apply. Therefore, itwill be for the employer and their representatives tocollate records and prove actual loss. Thecontractor will also not have prior visibility of thecosts they will be charged in the event of delay.

If nil is inserted in the relevant section of thecontract then the employer will not be entitled toeither liquidated or unliquidated damages. Thisshould be advised against as this significantlyreduces the contractors incentive to complete theworks by the completion date and prevents theemployer from recovering losses.

Where there is no mechanism within the contract toaward an extension to the completion date, theemployer cannot benefit if they are responsible forthe delay through items such as delayedpossession or changes to the scope of work, forexample. The remedy for liquidated damages willonly survive if there is a mechanism within thecontract for amending the completion date in theevent of an employer delay.

At the end of a project, the level of damages to bededucted may exceed payments outstanding to thecontractor. In this instance, the contractor wouldhave to make a payment to the employer. Therelevant provisions within the contract should bereviewed in this instance, as they may well covercontractor payment to the employer. However,should the contractor fail to make payment, theemployer or their representatives would need topursue the dispute mechanisms within the contractor pursue the outstanding sums as a debt.


Damages for delayto completion

RICS Practice Standards, UK

1st edition, guidance note

Damages for delay to completion1st edition, guidance note

This guidance note introduces the subject of damages for delay tocompletion by looking at the general principles including areas suchas law; reasons for introduction within a contract; amounts ofdamages, and how sums are deducted, certified or released.

It then focuses on how the standard forms of contract deal withdamages, concluding with a review of common issues andcommonly occurring problems.

Guidance is given for each of the main groups of contracts and theforms in most regular use within those groups, under the followingheadings which map to the Assessment of ProfessionalCompetence (APC):

General principles (Level 1 Knowing) Practical application (Level 2 Doing) Practical considerations (Level 3 Doing/Advising)

rics.org/standards rics.org/standards

GN 88/2011RICS QS & Construction Standards RICS QS & Construction Standards (the Black Book)

Documents

RICS Damages for Delay to Completion