September « 2009 « Home Building Online News

Liquidated damages is the pre-determined amount of compensation you have to pay the client if you finish the project late (i.e if you do not finish the project within the contract period). 

Usually, liquidated damages are set at:
(a)          the amount of rent being paid by the owner to live away from the site; or
(b)          the amount of rent that the owner could get if the premises were leased.

TIPS:

1.   Never cross out the part of the contract that specifies the amount of liquidated damages

2.  Never write “$0” as liquidated damages

3.  Try and keep liquidated damages as low as possible – even “$1 per week” is fine

4.  If the owner insists on having a substantial amount of liquidated damages, then you can also negotiate the same   amount being paid to you as a bonus if you complete the project earlier than the date of practical completion

On practical completion, it is common for you to meet with the client on the site, and carry out an inspection.  This is usually the time where you hand the keys to the client, and you are paid your final progress payment.  Your contract will usually state the specific procedure for practical completion.  Here are some tips:

1. If your contract has a specific procedure for practical completion, make sure you follow it.  When the project is properly handed over to the client, all the risk gets handed over to the client as well.  If you do not follow the rules in your contract, this may mean that the client has possession of the site, but the risk remains with you.

2. If the client asks for the keys to the house before practical completion is reached, you should avoid giving the client the keys.  This is because although the client is using the property whenever they like, the risk still remains with you up until the date of practical completion.