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Construction Law/Derivation of Liquidated Damages

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QUESTION: Dear Sir,

I am working in contractor side in Hong Kong. I would like ask:

1) How is liquidated damages derived and what is their contractual application?

2) When preparing claims for abortive works, what other elements will be considered apart from direct costs?

Many thanks

Dennis

ANSWER: Dear Dennis,


01. It depends on what is written in the contract and the law applicable. If the contractor fails to comply with the Time for Completion of the works due to his own default, he shall pay a certain sum (delay damage)to the Employer/Client at an amount (percentage) and timing (intervals) as stipulated in the contract. ( for example: 1/10 of 1% of Contract Price for each day of delay)

02. Depends on the contract and law applicable. In general, any cost incurred or to be incurred that can be proved is claimable (some examples are: eot, loss of profit, idling time of equipment etc., ).

Hope the above helps and Good Luck! Thanks.


Regards,

Jonathan L. Peralta


---------- FOLLOW-UP ----------

QUESTION: Dear Jonathan,

Thanks for your quick reply.

For my question 1, I would like to ask the following:

Is there any formula / formulae to evaluate the amount of LD per day. In Hong Kong, the amount of LD is quite different between projects, say 5% to 10%. How is the percentage evaluate? Or,it is always negotiable by top management between Client and Contractor during tender interview? Why 5-10% in general, how is the figure come out in a objective way?

My boss asked me such a question and I answered him that max. 10% of contract price,but my boss said there are other elements can affect the amount of LD. However, I do refer some reference books that they claimed LD as a certain percentage of the contract price. So, are there any points that I missed?

Best Regards,

Dennis

ANSWER: Dear Dennis,


Thanks for a follow-up question.

Under FIDIC contracts, there is no formula given, only a mechanism to apply LD. A sum is stated in the Appendix to Tender and shall be paid for each day delayed until the date stated in Taking-Over Certificate. It shall not exceed the maximum amount of delay damages stated in the appendix to tender (if something is mentioned).

LD is a genuine pre-estimate of loss due to the delay to completion of the works. Therefore it is the responsibility of the Client and his QS to determine (estimate) the anticipated damage in case the completion of works is delayed.  

Your boss is correct in saying that there are some elements that affect the amount of LD. Criteria must be set to determine this "pre-estimate" of damage, which may include: loss of revenue, project admin. cost, insurance etc.. The criteria and cost is of course depends on the project type and cost.

There's a formula i came across once, but it does only apply to the Philippines for infrastructure projects.

I hope the above helps and you can provide me a rating. Thanks.


Regards,

Jonathan L. Peralta

---------- FOLLOW-UP ----------

QUESTION: Dear Jonathan,

Thanks for your quick reply again.

I have the following questions that I would like to seek for your advice:

1) In Joint -Venture contract, what does it mean of "Consortium"?

2) In terms of claims for abortive works from contractor side, the procedure should be generally as follow:
e.g. Engineers should prepare records (photos, works is being done for the abortive works, date & time, prepare contemporary records etc.), then pass to Contractor's QS to estimate the cost, then pass to Contractor's project manager / contracts manager review and then sign it by them for submission to the client / employer for assessment.

In question 2, I would like to ask in the aspect of QS:
Is the cost evaluate soley based on the BQ? Say, mobilization cost for certain plant is $xxxx. If some abortive works done was not included in the BQ, then how can the abortive works be evaluated?

Best Regards,

Dennis

Answer
Dear Dennis,


01. Two or more companies joined and formed together as one to accomplished one goal under a contract. All members (companies) are liable under the signed contract.

02. You did not state the form of contract you are using, thus my answer will be limited and shall be based only on the brief information you have provided.

Evaluation of a claim is based on the Conditions of Contract.  

Not all contracts are written equally the same.

You need to check your contract.

Cost claim evaluation maybe based on BQ rates or for new items, cost from 3 different proposals may be presented by the Contractor.

Thanks and Good Luck!


Regards,

Jonathan L. Peralta  

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Jonathan L. Peralta

Expertise

Questions relating to construction claims, Extension of Time, Variations, Interim Payment and delay analysis under FIDIC Form of Contracts.

Experience

Experience in the following sectors: buildings, residential, infrastructure, civil and marine works. Have worked for different international contractors in Myanmar, Vietnam and the Philippines.

Organizations
AACEI, U.S.A., Dispute Resolution Board Foundation,U.S.A., ASCE, U.S.A., PICE,Philippines

Education/Credentials
Bachelor of Science in Civil Engineering, Registered Civil Engineer in the Philippines

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