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Understanding liquidated damages in construction contracts

On Behalf of | Aug 11, 2021 | Construction Contracts |

Almost every construction project involves a contract. In these contracts, you’ll typically find several clauses. One of the most important clauses in these contracts involve liquidated damages. Having this clause in a contract helps ensure your New Jersey construction project goes smoothly. Here’s more information about a liquidated damages clause and why they’re so beneficial.

Understanding a liquidated damages clause

Most parties about to sign construction contracts together have good intentions. Unfortunately, signing a contract won’t guarantee that a construction project gets completed on time and without any problems. This is why both parties involved in a construction contract typically agree on liquidated damages.

Liquidated damages are money that’s set aside to cover damages should one party commit a breach of contract. This amount of money should reflect an educated estimate of actual damages. To calculate liquidated damages, there’s an agreed-upon formula that takes a dollar amount multiplied by how many days late the project ran.

Why it’s beneficial to have this clause in a contract

One of the most important benefits of having a liquidated damage clause is peace of mind. When both parties agree on potential damages, it makes everyone feel calmer going into a construction project. It also provides a contractor with an accurate assessment of how much risk they’re taking on by signing a contract.

Another advantage of this clause is that it’s easy for someone to calculate damages. Because of this, there’s no need for the time-consuming and heated process of trying to prove any exact dollar amounts.

It’s often a good idea to include a liquidated damages clause within your construction contracts. These clauses can give everyone an idea of what to expect should they proceed with a construction project.