In New Jersey and other states that are known for construction, it is important to understand what liquidated damages are and what their role is in contracts. They are key to the planning and budgeting of construction contracts.
Liquidation damages
Liquidation damages are the funds that go towards paying for the costs of a construction project once it is past its contracted deadline. The construction company has to pay the liquidation damages, so if the project takes too long, then the leftover work has to come out of their pocket. Traditionally, the construction industry is one where it is hard to make a profit on any given project already, so having to put days of costs into liquidation damages can turn a money-making project into a money-losing one very quickly.
Disputes over the deadline, the nature of the damages, types of costs, and other contractual issues can lead to litigation for construction companies. When there is that much money at stake, contract problems can become very important and litigation can make the difference between bankruptcy and keeping the business running.
The liquidation damages are often at stake in a dispute over the length or terms of a contract and even after factoring into the cost of the lawyers and legal time, the litigation can still be worth pursuing because the daily cost of construction is so high. The more days past the original due date the project goes, the larger the damages will be, especially if there are still expensive phases of the project left.
Knowing the rules and contractual obligations surrounding liquidation damages can forestall all kinds of problems and additional costs down the line.
