When a Subcontractor is awarded a job and a Headcontractor issues it with a purchase order, the purchase order is often subject to a contract document styled ‘Terms & Conditions’, ‘General Conditions’, or ‘Subcontractor Agreement’.
The contract document may:
- set a contractual date for practical completion of the (Works) as defined under the contract; and,
- impose liquidated damages on the Subcontractor, which, are payable to the Headcontractor for each day that the Subcontractor delays achieving practical completion.
If you are a Subcontractor, here are three tips on managing the risks associated with liquidated damages before you sign a contract with a Headcontractor
First, you may negotiate with the Headcontractor to reduce the daily amount of liquidated damages payable.
Second, you may negotiate to insert a cap in the contract on the maximum liquidated damages payable, such as to:
- 20 % of the overall contract price; or,
- your profit margin in respect of the contract.
Third, you may negotiate with the Headcontractor to ensure the contract provides an adequate entitlement for claiming an extension of time (EOT) in relation to:
- the event entitling you to an EOT; and,
- the time which you have for providing the Headcontractor with notice and submitting an EOT claim (this is often limited for Subcontractors).
If your contract has adequate provisions for claiming EOT’s, this reduces the risk of:
- failing to achieve practical completion of the Works by the contractual date for practical completion; and, subsequently,
- being compelled to pay the Headcontractor liquidated damages for delays.
Vogt Legal specialises in assisting Subcontractors. Get in touch today for a free initial legal consultation.
