As 2025 rolls forward, momentum is gaining quickly as the Gray Reed Construction Team and I are experiencing a large influx of construction contracts to review and redline for negotiations. Each consecutive week has seen more and more at every level, including Owner –> GC, GC –> Subcontractor, and Supplier/Manufacturer –> Contractor. With so much work being undertaken and the uncertainty of ever-changing market conditions for owners of industrial infrastructure projects it remains vital that properly negotiated contract provisions and contract administration practices are in place since revenue yields are the ultimate measuring stick of success.
Damages
How do owners of industrial infrastructure projects protect themselves from a damages perspective in the event of unexpected delays? It starts with effectively negotiating the construction contract on the front end of the project. Typically, there are 3 paths for damages during the course of any contract negotiation between owners and contractors. The most common type of damages accepted by all parties are actual damages while consequential and special damages are more commonly negotiated out of the contract by unilateral or mutual waiver. The last and perhaps most commonly considered, discussed and feared are liquidated damages, as discussed in a previous blog post.
The legal issues impacting these concerns are obvious:
- Defined completion date and maintained schedule
- Liquidated or consequential damages
- Requirements for extensions of time
- Defined excusable and non-excusable delays
- Limitation of liability
- No-damage for delay
- Acceleration
Liquidated damages are intended to provide predictability to the owner and contractor as to the financial consequence of not completing a project in a timely manner. Since liquidated damages are intended to compensate the owner for its “damages” resulting from a delayed project which are difficult or impossible to accurately predict at the contract phase, they must be tied to the owner’s real costs and damages such as anticipated revenue, continued construction costs, lost business opportunities and more. The advantage to =owners of liquidated damages is they provide predictability and are significantly easier to prove and recover.
Consequential damages are essentially a measure of liquidated damages except often much more difficult to prove, especially without a damages expert, and also nebulous. Owners should expect a request from contractors to waive consequential damages from the contract. In anticipation of this, it is best practice of owners to be prepared with a well-drafted liquidated damages provision and in a reasonably enforceable amount. Regardless no owner should leave home without at least having liquidated or consequential damages as part of their contract.
Stay Tuned
This is the continuation of a series of articles related to what industrial owners must consider when protecting their economic interests in the timely completion of critical construction projects. Be sure to look out (or subscribe) for my article next month when I discuss the Requirements for Extension of Time or contact me in the interim with any immediate questions.