Liquidated damages vs. Indirect damages?
Hello,
A101 Sec.3.3.3 mentions "Liquidated damages", in case the Contractor fails to meet the Substantial Completion dete.
However, A201, Sec.15.1.7 clearly prevents the Owner from rising such claims, in the "Waiver of Claims for Consequential Damages".
See screen cap.
The two sections see to contradict each other.
Aren't the same type of damages being discussed here?
Thank you
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AHPP, p. 1091:
Consequential Damages
A party that breaches a contract is ordinarily liable to the other party for all damages that are the result of the breach, including both “direct” damages and “indirect” or “consequential” damages. In construction, an example of direct damages is the cost to repair defective work or to complete work left unfinished by the contractor. Consequential damages are losses that are not the immediate result of the breach, but are losses that the breaching party has reason to know the other party will likely incur when the contract is breached. In the construction of a hotel, for example, lost room rentals are consequential damages incurred by the owner when the contractor fails to complete the work by the date stated in the contract, provided that the contractor knew when the agreement was signed that the owner would suffer lost rent if the work was not completed on time. Contracts such as those based on AIA Document A201TM–2007 may contain a waiver of consequential damages. When consequential damages are waived, only direct damages can be recovered when the contract is breached.
Liquidated Damages
Because it may be burdensome to determine the precise amount of damages that a party incurs when a contract is breached, the amount of damages may be predetermined or fixed as “liquidated damages” in the contract. The governing law restricts the ways that liquidated damages provisions can be applied, however, so legal advice is always recommended when including a liquidated damages provision. In construction, liquidated damages are most frequently used to set the amount of damages owed to the owner for delay in completion of the work, generally on a per-day basis. Because such delay damages are typically consequential damages, any provision that waives consequential damages should specifically state that liquidated damages are not precluded. Care must be taken to ensure that a liquidated damages provision does not conflict with any waiver of consequential damages.
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The key words here are "if any" in A101 Sec.3.3.3. This section is talking about if the owner and contractor has agreed on a certain amount of Liquidated Damages. For example, the contractor is to pay the owner $1,000 for each day delayed, but normally the owner has to agree to pay the same amount of reward ($1,000) per day if the contractor finished early.
This specific clause of the contract has to be expressly agreed to in writing in the contract.
Gang Chen, Author, Architect, LEED AP BD+C (GreenExamEducation.com)
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Thank you Valerie, and Gang.
So, "if any" means: "If the Contractor and Owner agree to any fixed, estimated cost / damage, at execution of the contract"?
It does not mean: "If the Owner incurs in any damage due to Contractor not meeting completion date".
In other words, if the O and C agree in defining some kind of Liquidated damages, they can do so within the contract A101 sec.4.5. However, if they DO NOT specify any Liquidated Damages, then the Owner cannot file claims seeking relief for Consequential Damages because the contractor missed the completion date (A201 sec.15.1.7).
So:
Liquidated damages = damages proactively negotiated (estimated) in A101 sec.4.3 to cover possible Consequential Damages (which would be hard to asses).
Consequential Damages = actual costs or losses the Owner may incur or suffer because the contractor missed the agreed completion date (these are hard to asses).
Then it appears that the Owner should definitely include some Liquidated Damages listed under A101 sec.4.5, otherwise, later, he will not be able to sue for Consequential Damages...
Am I understanding this correctly?
Thank you
Regards
gio
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Liquidated damages are damages agreed upon in advance, and they are based upon estimated costs that will be incurred by the owner IF the contractor DOES NOT complete the work by the agreed upon completion date and the owner cannot use the building at the anticipated time (usually Substantial completion date). Very important: clauses stipulating that liquidated damages will be addressed may also be accompanied by a BONUS PROVISION, but this is not required. Consequential damages are damages that “do not necessarily, but do directly, naturally, and proximately result from breach of contract” (damages include lost of rent, rental costs, damaged reputation, finance charges, etc.)
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Yes, if the owner and contractor has modified the standard AIA contract and added a very specific amount for liquidated damages, it will overwrite the standard contract.
Yes, clauses stipulating that liquidated damages as a certain cost per day must be accompanied by a BONUS PROVISION by the same cost per day, otherwise it will not hold up in court. The two parties in the contract have to be treated equally.
Gang Chen, Author, Architect, LEED AP BD+C (GreenExamEducation.com)
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