News & Views

13th September 2016

Avoiding penalty costs around contracts

13 Sep 2016

Many of our members have contacted us recently regarding contracts, delays, delay notices, extension of time and liquidated damages. Generally construction projects are extremely unpredictable due to weather, site conditions, access issues and other unknowns that may arise. All of these (and more) may contribute to delays and significant cost increases for your company. Most construction contracts will provide for what should be done in such circumstances. There are as many variables as there are contracts/project types. Accordingly, it should be noted that this article is only focusing on two particulars types. 

Delay Notices and Extension of Time

Most contracts provide for delay notices. Generally a claim for an extension of time should be made strictly in accordance with the contract for the project. Generally contracts require a notice of delay. This is generally a notice that is general only and is not a claim under the contract.

If you are carrying out a project under a construction contract and there are delays, you should always issue a delay notice in order to protect your company. This notice should include as much detail about the delay as possible in order to substantiate the delay. However, be sure to always check your contract requirements. Further, you should always ensure that the delay notice is given within the time frames that are accounted for under the contract. Time frames under a contract can often be stringent and you should ensure that you read your contract thoroughly prior to signing it.

As most contracts account for delay notices, a failure to comply with a clause that requires you to give notice within a particular time period will often result in you losing your right to claim an Extension of Time possibly making you liable for liquidated damages. Make sure to check your contract. If this is not covered, always ensure that you exercise caution.

Liquidated Damages

Generally liquidated damages will be raised where there has been a breach of contract in respect of delivering a good or service on time. The most common instance where a claim for liquidated damages is made is where the contract provides for a Date of Practical Completion and the contractor does not reach Practical Completion by this date. Note however that liquidated damages may apply where there has been other breaches of the contract. This can be avoided by putting in proper Extension of Time Notices.

Liquidated damages can be extremely detrimental to your company and are generally accrued on a daily basis. Often liquidated damages rates in contracts may range from $1,000.00 to $10,000.00 (in some cases more) per day.

Take note that liquidated damages have to be a genuine pre-estimate at the time when the contract was entered into of a loss that a party may suffer if a breach of the contract occurs. If the liquidated damages are not a genuine pre-estimate, it may be considered to be a penalty and therefore may not be enforceable.

Our solicitors at NECA Legal will be able to assist you should you have any questions regarding this article. Additionally, if you require a contract review please contact NECA Legal and we will issue you with a costs disclosure. Note that as a NECA member you are eligible for subsidised legal rates. You can contact NECA Legal on (02) 9744 1099 or email your enquiry to law.clerk@neca.asn.au.

 

-ENDS-

 

Media enquiries and interviews

Barry Jackson – National Marketing and Communications

E barry.jackson@neca.asn.au

D 02 9962 6904

M 0457 767 328

 

Notes for editors

  1. NECA is the peak industry body representing the interests of electrical and communications contractors Australia-wide.
  2. NECA is run by electrical contractors, for electrical contractors.
  3. We have 5,000 contracting companies as members – and they in turn employ over 50,000 people Australia-wide.
  4. NECA employs almost 350 people across its seven chapters (Queensland, New South Wales, ACT, Victoria, Tasmania, South Australia and Western Australia).
  5. The chapters provide NECA members with a range of services including: Industrial Relations, Health & Safety, Legal, Technical, Training, business-support services, product discounts and advocacy representation in Canberra with Government, Industry bodies and Training bodies.
  6. NECA wholly-owns its Legal firm, Group Training and the NECA Colleges (in WA) and EcoSmart Electricians – and has joint ventures with a superannuation company (NSW) and one of the national cabling registrars (ACRS).
  7. NECA also employ around 2,000 apprentice electricians and provides training to a further 2,000.
  8. For further information go to www.neca.asn.au.

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