Getting a penalty clause in a building contract

[Mr Green]

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?

[Spiritual_Beggar]

Have you looked through the JCT contracts to see if there is one there that could help you out? I'd be suprised if there wasn't one already that covered the use of penalty clauses in small works contracts.

[oyster]

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?

I suspect it's not worth the paper it's written on. Or at least that is my experience of penalty clauses in contracts both in engineering and IT. The hardest bit is actually identifying blame.

[CedGTV]

Would be very hard to enforce on small works, we use a JCT contract with Liquidated and Ascertained Damages ("LADs") for any over running works, but it would need your builder to sign a contract to cover the works and programme.

Only way would be to withhold monies until or convey that the works HAVE to done by a certain date.

Good luck

[sleep envy]

where abroad is it?

[s4avant]

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.

[Mandat]

What you need is to agree the construction programme with the contractor and have commencement and completion dates in the contract. You then also specify that the contractor will be liable for Liquidated Ascertained Damages (charged per day / week / month, etc) for non-completion.

However long they fail to complete the project, following the agreed completion date you deduct the LAD's from their final account.

This is pretty much standard in the JCT contracts, although it may not be standard practice abroad. You do not say which country this is in.

[sleep envy]

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

[CedGTV]

I wish my boss understood that Sleepy, as he always uses that as a stick to beat us around the last 4 weeks of a contract, and then in the subsequent bonus negotiations.

[sleep envy]

Ced - you work for a contractor or a CM company?

[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

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.

LD's for the most part are about as much use as a chocolate teapot. In theory they are great, in practice most contractors will have a field day demonstrating that they were entitled to a schedule extension anyway.

If you need an LD clause for the type of work originally described you have the wrong contractor. As others have said he'll price it in anyhow & what you are saying is you don't believe he'll finish on time anyway.

[3sixty]

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

For once I had something valuable to add on PH and you go and steal my thunder....

I'll be in the corner waiting for the next question....

Edited by 3sixty on Tuesday 31st March 16:57

[johnfm]

Samll job that should take a week, but takes 3 or 4. I'd say retention of payment is your friend.

Never pay a deposit for materials etc etc. If they are a half decent building team, they can cashflow £1000 of materials FFS.

Then pay regularly on stage completion AND STICK TO IT.

If they say they will have foundations done by day 3, up to wallplate by day 8 etc etc, don't pay them until the stage is reached.

As soon as you cave in and pay for time, rather than stages, they will fk you over - in my painful experience anyway.


Always have enough retained to pay others to finish the job so you can kcik late, poor builders off a site.

I wish I had known this before MY build projects. It has cost me tens and tens of thousands by allowing slow builders to miss the market peak at end of 2007.

Costly error.

[sleep envy]

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

[Carl_Spackler]

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!)

[sleep envy]

Carl_Spackler said:

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!)

essentially, yes

it is highly unlikely a contractor will hand over cash simply on the say so of the QS or client especially if there has been any project over-run: you can imagine that the state of their relationship will be pretty poor with little trust between them

also, no client will ever rate LADs at a cost higher than their potential loss as the contractor will evaluate this and price his tender accoringly

[Carl_Spackler]

sleep envy said:

Carl_Spackler said:

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!)

essentially, yes

it is highly unlikely a contractor will hand over cash simply on the say so of the QS or client especially if there has been any project over-run: you can imagine that the state of their relationship will be pretty poor with little trust between them

also, no client will ever rate LADs at a cost higher than their potential loss as the contractor will evaluate this and price his tender accoringly

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

[hahithestevieboy]

Ok guys,

L&AD's are not appropriate for 1 week long jobs. Neither are the JCT suite of contracts or the ICE or NEC equivilents.

In any case, if they are domestic construction works L&AD's are specifically excluded (the housing grants and construction act does not apply to domestic work).

I think the OP said that it was abroad? If it is, it is highly unlikely that a standard construction contract like JCT would be usable in any case.

In this situation it is best to agree the particulars in writing but nothing beats getting an honest contractor who comes with references you trust.

HTH

[sleep envy]

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?

[hahithestevieboy]

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?

Ha ha... applying L&AD's too early in the contract? Perhaps an NEC with a niave project manager/contract administrator?

L&AD's are a really bad road....