Getting a penalty clause in a building contract

[edwardsje]

s4avant said:

If there is a penalty clause in the contract, the contractor will know it is there a will adjust his price accordingly.
Best advice is to forget the penalty, find a contractor that you can trust and then get on with the job. Some flexibility must be allowed for the likes of inclement weather and the late delivery of materials by sub-contractors etc.

Wise words mate - they will always get you in the end, so get a good one to start with.

Ours appear to have moved in with us, but they are doing a blinding job, and I'd rather they were working to a spec than a date.

[MrV]

Unless I am reading the Op's post and its every builder he has used out there in the past then just get another one.

[hahithestevieboy]

Carl_Spackler said:

sleep envy said:

GT03ROB said:

LD's is what I'm used to & there is no need to demonstrate that you have incurred the costs or suffered a loss, so maybe LAD's area new term in UK construction contracts.

yes you do have to demonstrate the cost eg;

LADs in the contract - £10k/week or part there of

Actual cost/loss to client - £7.5k/week or part there of

he will only awarded the £7.5k/week or part there of retrospectively as you need to determine the total cost, the contractor will challenge the application and the employer has to substantiate the claim in court

as I said it is not a punitive clause

ETA - it's been like this since I first looked at JCT80 many years ago

Edited by sleep envy on Tuesday 31st March 17:16

I didn't know that, so if the contract states L+A damages at .../week the client has to substantiate this if he wants to deduct this? (Lot of QS'sss on here isn't there!)

The point of l&AD's is that they are ascertained before the contract is signed thus they must be calculated in some way before hand. As long as they are not blatantly punitive a judge will never overturn the contract conditions.

You only ever have provable costs if for some reason time has not become at large and you dont have pre ascertained L&AD's

[hahithestevieboy]

MrV said:

Unless I am reading the Op's post and its every builder he has used out there in the past then just get another one.

Could be a culture thing???

[Carl_Spackler]

sleep envy said:

Carl_Spackler said:

Interesting, on the very few occations we've had these levied, the client has just deducted them from from the interim certificate (Scotland) and we've spent the next months fighting to get them back, always have mind you, Loss and Expense suddenly becomes mega bucks

what contract was that under and who was administering it?

Can't remember probably JCT private with quants, small projects, 500k to 1M.

[sleep envy]

Carl_Spackler said:

sleep envy said:

Carl_Spackler said:

Interesting, on the very few occations we've had these levied, the client has just deducted them from from the interim certificate (Scotland) and we've spent the next months fighting to get them back, always have mind you, Loss and Expense suddenly becomes mega bucks

what contract was that under and who was administering it?

Can't remember probably JCT private with quants, small projects, 500k to 1M.

IMO you need to review this as they can't and shouldn't be doing this contractually

[hahithestevieboy]

sleep envy said:

Carl_Spackler said:

sleep envy said:

Carl_Spackler said:

Interesting, on the very few occations we've had these levied, the client has just deducted them from from the interim certificate (Scotland) and we've spent the next months fighting to get them back, always have mind you, Loss and Expense suddenly becomes mega bucks

what contract was that under and who was administering it?

Can't remember probably JCT private with quants, small projects, 500k to 1M.

IMO you need to review this as they can't and shouldn't be doing this contractually

Bloody right. You can only apply L&AD's if the contract administrator (probably the architect) has issued a non completion certificate and then a (late) practical completion certificate. You can charge the L&AD's to the contractor then in the final account. That usually happens at the end of a job (unless sectional completion). Besides, private with quants sounds like a 98 form. Was is ages ago?

[Jasandjules]

Mr Green said:

I have a place abroad and when ever we get a quote for a building job they usually say it will take 1 week to complete the work but more often than not it takes 2 or 3 weeks. They give you the impression that 4 guys will be working on it but only 2 show up.
I would like to include a penalty clause in the contract/quote next time to prevent this sort of thing happening has anyone any experience of this?

It's easy enough to write one BUT if you are abroad I don't rate your chances very highly of enforcing it, I can only deal with UK law.

You just put something like Cost of contract = X if completion date = Y. For each day over Y a penalty charge of Z will be levied by YOUR NAME. Both parties, by signing below, agree to this clause being enforceable.

See what happens.

[cardigankid]

Sleep envy is right, you can't just do that, but getting bogged down in the contract isn't the solution either.

[sleep envy]

hahithestevieboy said:

You can only apply L&AD's if the contract administrator (probably the architect) has issued a non completion certificate and then a (late) practical completion certificate.

yep, the actual time 'in delay' needs to be determined, and can only be done at completion, otherwise how much does he know how to levy?

as an aside, Arch's make for the worst CA's as they never compile the contracts docs

[sone]

As a contractor I think I have enough experience to give a qualified response to this and my response is if you have to refer to contract terms you are fooked.
I have set up deals with my subcontractors at times with a completion bonus, this tends to focus there attention but can cause anxiety between trades on site.
I expect to be fooked about by the trades and build in contingency for it. Find a good contractor and stick with them that is my advice, price is not always the key.

[sleep envy]

sone said:

As a contractor I think I have enough experience to give a qualified response to this and my response is if you have to refer to contract terms you are fooked.

fair point but there's a world of difference between DOM1 and JCT

[GT03ROB]

sleep envy said:

before everyone gets carried away LADs cannot be levied as a penalty - they are in their nature as they are called; liquidated and ascertained damages i.e. you can only claim (up to a pre agreed value) any cost you have incurred due to late completion of the work due to the fault/cause of the contractor

Spot on regarding being levied as a penalty. If an LD amount is deemed to be punative it will be overturned.

LD's are actually a major advantage to contractors in many circumstances. They enable the contractors to limit exposure for non-performance. I am used to them where the loss potentially sustained by late delivery is disproportiante to the contract value. In these circumstance any correlation between the LD value & the actual loss would such that the cost of construction would go through the roof & the contractor would be solely interested in EOT claims. LD values may typically by limited to 1 or 2% of contract value.

[Geezer-20v]

Get yourself a copy of the JCT 2005 Contracts and pick which one is most suited towards your type of work (I would be guessing Minor Works)

In the contract particulars there will section called LAD's Liquidated Damages, Damages for Lateness etc.

You can insert a figure/rate for what you assume to be the likely damamges if the contract is to overun. i.e. £2000 per week

The contractor must accept this when he signs the contract.

Note :- make sure all the correct Notices and Certificates are awarded inline with in the contract docs

[sleep envy]

GT03ROB said:

LD's are actually a major advantage to contractors in many circumstances. They enable the contractors to limit exposure for non-performance. I am used to them where the loss potentially sustained by late delivery is disproportiante to the contract value. In these circumstance any correlation between the LD value & the actual loss would such that the cost of construction would go through the roof & the contractor would be solely interested in EOT claims. LD values may typically by limited to 1 or 2% of contract value.

depends what the job is, the loss/cost suffered by the employer and the impact it has to them

I have a number of schemes on site at present which have £Nil as LADs - the stick the client wields is the framework agreement the contractor has signed up to and the risk to future projects

just out of interest, if the CA issues a non-completion certificate due to a project over run of 2 weeks and it is proven the delay was due to a sub, would you pass the claim on?

[sleep envy]

Geezer-20v said:

You can insert a figure/rate for what you assume to be the likely damamges if the contract is to overun. i.e. £2000 per week

you can't assume the rate, it has to be calculated based on the impact of potential loss due to delay

[Geezer-20v]

Yeh technically its has to be "calculated", but there is no accurate calculation or formula to evaluate the loss that the client will incurr from delays as it wholly depends on the nature of the delay and the extent of it. I.e. Large delays on industrial units may start to affect rental agreements, however a small delay in groundworks may result in a stat.authority not being able to make a connection on the arranged date etc.etc

From what I have heard from ex-employees of large firms and first hand experience is that Clients normally enter a figure in which they are happy it will cover even the most extensive costs.

[hahithestevieboy]

Crikey, there are alot of QS's on here, but I would suggest that none of the JCT contracts would be appropriate for week long jobs abroad (especially domestic). They are too hard to administer for a punter

So in answer to the op's question. No there is not (penalties can only be levied by a court of law in england at least). It would be difficult to sue the contractor for loss and expense as this would be provable (did he actually have any loss and expense - i doubt it). L&AD's at least in england are not doable (specifically excluded) from domestic building work. The best you can hope for is a bonus for completion on time but most contractors would not reduce their price. References from happy customers are the best way forward for the OP

[3sixty]

I'm liking the partnering culture that is clearly present in all the above comments.

[GT03ROB]

sleep envy said:

GT03ROB said:

LD's are actually a major advantage to contractors in many circumstances. They enable the contractors to limit exposure for non-performance. I am used to them where the loss potentially sustained by late delivery is disproportiante to the contract value. In these circumstance any correlation between the LD value & the actual loss would such that the cost of construction would go through the roof & the contractor would be solely interested in EOT claims. LD values may typically by limited to 1 or 2% of contract value.

depends what the job is, the loss/cost suffered by the employer and the impact it has to them

I have a number of schemes on site at present which have £Nil as LADs - the stick the client wields is the framework agreement the contractor has signed up to and the risk to future projects

just out of interest, if the CA issues a non-completion certificate due to a project over run of 2 weeks and it is proven the delay was due to a sub, would you pass the claim on?

Agreed, it's also a factor of the margins. I work oil & gas. Margins are low (no I'm not joking) relative to the risk. The clients can be looking at return on investments measured in months not years. There are virtually no contractors that could take the risk on LD's that were calculated or related to actual loss of earnings suffered by clients. The clients "incentivise" the contractors by seeking to place only the contractors profit at risk in the event of overruns. The biggest incentive to perform however is the next job as you say.

Perfomance bonuses & incentive schemes are however becoming more common with the more sophisticated clients. Far better to let the contractor earn double his profit margin by paying a bonus and bring the facility in a few months early. The cost to the client is minimal relative to the return.

Having worked a $1bn contract where I had a bonus that was a proportion of the value of product shipped, it was amazing how creative we got to deliver early.