30183_NASC CG19-18_p3:CG19 30/5/18 08:54 Page 1

CG19:18
Liquidated and Ascertained Damages

1. Damages

Contracts impose obligations on the parties to a contract. If either party fails to complete any of its obligations it is
said to be in breach of contract. For example a member company would be in breach if it erected a defective scaffold
or failed to start the work on the date stated. An employer would be in breach if it failed to provide access to the
work on the date required or failed to make payments as required by the contract. An innocent party is entitled to
damages from the guilty party in compensation for the breach.

The level of damages payable will vary according to the nature of the breach. Technical breaches may incur nominal
damages while more serious breaches may give rise to substantial damages. Damages are therefore normally calculated
after the breach has occurred when the level of damages can be accurately assessed. Assessment of damages can be
difficult, time consuming and require proof.

2. Liquidated Damages

It is however possible for the parties, prior to the commencement of a contract, to agree a sum of money to be paid
as damages in the event of a specified breach being committed. That is to say the level of damages is predetermined,
or liquidated and ascertained (LAD), and is set out in the contract documents. In the event that the specified breach
is committed the innocent party may deduct the agreed sum for liquidated damages from any amount due under the
contract without proof being required as to the level of damages.

The sum stated to be LADs must be a genuine pre-estimate of the damages that would be incurred in the event that
the specified breach occurs. It does not have to be accurate to the last penny but must represent the likely damages
that might be incurred at the time the contract is made. The sum would still be enforceable as LADs even if market
conditions change to such an extent that the original sum would prove to be inaccurate at the time the breach
occurred.The innocent party is not required to prove the amount of actual damage and it does not matter if the actual
loss is higher or lower than the estimated sum.

The most common application of LADs is in connection with the failure of a main contractor to complete the main
contract works on time. LADs are normally expressed as a sum of money payable for each day or week by which the
works remain incomplete. All of the common forms of main contract specify a date on which the main contractor is
required to complete the works. If that date is passed and the main contractor is not entitled to have the date for
completion extended the employer is entitled to deduct a sum of money equal to the period of delay multiplied by
the amount of LADs.

3. LADs in Main and Sub Contracts

Although LADs are commonly included in main contracts it is unusual for them to be included in subcontracts because
of the requirement that the sum included be a genuine pre-estimate of the damages likely to arise from a specific
breach. The level of damages that might be incurred in a subcont ract may vary considerably depending on the time
at which any breach occurs making it impossible to pre-estimate the level of damages. In the absence of LADs, and in
the event the subcontractor causes delay in completing the main contract works, the main contractor will be required
to prove the damages incurred, which may include LADs under the main contract, prelim costs, and disruption costs,
from other subcontractors.

NASC May 2018

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Main contractors inform subcontractors of the LADs included in the main contract, along with other information
which the subcontractor should be aware of. This information is normally included in the appendices of the
subcontract.

4. Enforcement of LADs

The procedure for enforcing LADs included in main contracts will be set out in the contract. The standard forms of
contract normally require the employer, or his engineer/architect, to inform the contractor that the work has not been
completed by the agreed completion date, or any extended date, and that the employer is entitled to deduct damages
at the agreed rate for each day/week the works remain incomplete. Subject to administrative procedures to be
followed the employer may deduct the correct amount of damages from any payments due to members. If there is no
further payment due to members, employers are entitled to recover the damages as a debt.

So far as subcontracts are concerned the main contractor will have to demonstrate that any member caused delay
has delayed the overall completion of the main contract works before LADs under the main contract can be included
as part of the general claim for damages for delay caused by the member. Furthermore the main contractor will have
to demonstrate that he has also paid or allowed LADs to the employer before they can be deducted from a member’s
account.

5. Considerations to be made at tender stage

The most important point to consider as regards the potential for incurring damages of any description, whether in
main contracts or subcontracts, is the period of time for completing the works. Members should always ensure that
the period allowed is sufficient to do the work. If the period is set by the employer or main contractor and is not
considered to be sufficient members should raise the issue with the employer or main contractor and negotiate a
longer period. If the employer/main contractor will not increase the period members may need to consider whether
they should submit a tender. Alternatively members may wish to include in their tender a sum equivalent to the
damages that may be incurred in the event they cause delay to the completion of the work. Liability should be limited
to no more than 10% of the order value.

Whilst every effort has been made to provide reliable and accurate information, we would welcome any corrections to information provided by the Writer which
may not be entirely accurate, therefore and for this reason, the NASC or indeed the Writer, cannot accept responsibility for any misinformation posted.

NASC NASC, 4TH FLOOR, 12 BRIDEWELL PLACE, LONDON EC4V 6AP

TEL: 020 7822 7400 FAX: 020 7822 7401
enquiries@nasc.org.uk www.nasc.org.uk
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