In today's environment, project delay either in the real estate or construction sector happens to be a matter of concern to project clients. When a project does not meet its previously agreed delivery date, this may be termed a Project Delay.
There are Excusable Delays (ED) which may be compensable and non-compensable and Non-Excusable Delays (NED) which often triggers the enforcement of damage clauses in contracts.
The sum of money claimed as compensation to the claimant for any loss, harm or injury suffered due to the breach of contract (not keeping to a previously agreed contract) is what is termed as Damages.
In construction and real-estate, the contractors and developers largely bear the risk of keeping within the scheduled project timeline by delivering and handing over the project at the stipulated pre-agreed date.
Where non-excusable situations arise that may result in a delay on the part of the contractor, the enforcement of the damage clause in a contract may be triggered. With the various forms of damage enforcement, the LAD (Liquidated and ascertained damages) are most appropriate and useful for projects that present losses as a result of delayed completion.
LADs are a predetermined and agreed amount as a measure of damage between parties in a contract and is usually a set value of money which will be paid by either party in the event of any non-excusable project delay. LADs are to be in the interest of parties in a contract and must be reasonable, justifiable and should be able to commensurate for the loss encountered due to the delay.
For example; LADs are defined as a set value over a set period like N150,000 per week. Translation - In the case of a non-excusable delay, if the contractor or developer exceeds the agreed project completion date by a week, the client or employer is entitled to a contra charge of N150,000 against the final account of the contractor or developer i.e. The contractor or developer is levied a cost of N150,000 for every week the project is not handed over to the client/employer.
Hence, are you looking to purchase a product (Land or houses) from a real-estate developer and you are being promised that some certain parts of the project will be handed over at certain stipulated times or looking to engage a construction contractor for construction development and you need it as a certain time, its imperative that when going into the contract with these real-estate developers and construction contractors, you request that a damages clause – preferable LAD clause be put into the agreement in case of any default or project delay.
- Hampton, G., Baldwin, A.N. and Holt, G. (2012). Project delays and cost: stakeholder perceptions of traditional v. PPP procurement. Journal of Financial Management of Property and Construction, 17(1), pp.73-91