Liquidated damages are the monetary amounts that are paid after a contract is breached if they are provided for in the agreement. This type of compensation is provided for intangible damages, such as a late performance or a failure to meet quality standards for a project. In Texas construction law, liquidated damages increase the amount of financial protection for a project.
Types of breaches
The three main types of breaches of construction contracts include:
- Defective workmanship
- Inadequate scheduling
- Failure to perform
Most breaches of these contracts involve construction defects. The amount of damages depend on the nature of the defect and the extent to which the defect interferes with the construction planning.
Scheduling problems include contractors who show up late to work, do not show up at all or fail to bring the right tools and equipment. The third type of breach is a failure of performance. The contractor does not do the job according to the performance standards outlined in the contract.
The recoverable amounts of the damages are usually predetermined while the contract is being created. An amount that is “at large” will be determined in court after the breach of contract occurs.
A construction contract that contains a clause for liquidated damages is not always easy to interpret in court. Whether or not this clause is enforceable depends on state law.
The purpose of liquidated damages in a construction contract is to increase the level of security in your construction project. Guaranteeing these damages is a guarantee that the work is completed without problems. If the contract is breached, the damages are paid to the injured party; however, this occurs only if the contract is enforceable in court.