REALWorld Law



Is it possible for the parties to a construction contract to agree that the time/date for completion of the works is to be fixed? How would delay be dealt with?

United States

United States

Yes, parties to a construction contract can fix the time/date to complete the entire project. In addition, they can agree to the time/date when a portion or portions of the project must be completed (usually called milestones), including fixed time/dates for both substantial completion and final completion.

A common method of dealing with delays is to provide for liquidated damages, often referred to as ‘LDs’. If the parties decide upon LDs, the contractor agrees to pay a certain sum for each day (or some other increment) of delay for each portion of the project and/or for the entire project not completed on time. Liquidated damages are often used where the amount of actual damages would be difficult to calculate and prove.

The sum determined by the parties should be an estimate of actual damages, not a penalty – a penalty is not enforceable under US law. As a result, it is important for the owner to perform the exercise of attempting to calculate what its damages will be if the project or any portion of the project is not finished on time (even if difficult or speculative). In addition, the liquidated damages must be the sole remedy available to the owner for delay, ie the owner cannot have the choice of demanding payment of liquidated damages or pursuing the actual cost of delay through litigation.