Many contracts in the construction industry contain clauses relating to lump-sum damages, a form of compensation in which the amount of liability for breach can be found in the contract itself. Lump sum damages are designed as an appropriate representation of losses in situations where actual damage is difficult to determine. Lump sum damages allow the parties to know in advance what they are liable for in the event of a breach of contract. However, you may feel more like a fine or penalty if you don`t keep your promises. It is important that lump sum damages, while they may be punitive, are not and are designed to represent a fair assessment of damages where actual losses are difficult or impossible to determine. It is also advisable to prepare and update project plans on a monthly basis. If the contract contains clauses intended to include lump sum damages and the actual damage suffered by the owner, the contractor must determine which measure of the damage is the lesser of two evils. `A certificate from the architect attesting that the contractor has completed the work in whole or in substance. be conclusive… The advantages of using a lump sum compensation clause result from the fact that the amount of damages is known and easily enforceable. If a contractor is late, it is impossible to accurately determine the money lost due to that delay. This is the kind of problem that can cause simple litigation to take years.
However, a lump-sum indemnification clause may indicate a certain amount due if a contractor fails to meet the schedule, or better yet, a formula that calculates the length of the delay using other relevant measures to determine a safer damage assessment. „If the actual damage is difficult to determine and the amount agreed by the parties at the time of performance of the contract is a reasonable estimate of the actual damage, such a contract shall be performed.“ The lump sum compensation is calculated based on what the owner would lose if the project was not completed on time (final completion) and the owner was prevented from using the project as intended. However, if the project is essentially completed, which means that the owner can benefit from the project, he may not be able to assess the lump sum damages. Second, engineers and owners must document how this estimate was made. In the event of a dispute, the owner must bear the burden of proof that the provision relating to lump-sum compensation was based on an appropriate prognosis of the actual damage. Since homeowners rely on engineers, the engineer is asked to identify the impact of late completion and how each impact was estimated. A great example of an external event that makes a contract last longer is a request for extra work from the owner. Contractual provisions for the extension of the completion period benefit both the owner and the contractor by adjusting the completion date, thus preserving the owner`s right to compensation if the project is not completed by the new completion date. If the owner delays the project but these delays do not occur at the same time, the contractor may be entitled to more than one extension of the time to complete the project. In such circumstances, the contractor may wish to review a claim for an extended construction site and home office overhead during these periods.
This compensation can then be a claim for compensation with the lump sum damages. Whether you need a written contract to qualify for a mechanic`s lien depends on the state you are in. `Substantial completion within the meaning of this Section means either that the work required by the contract, with the exception of the works, has been completed at a contractual price of less than one per cent of the total contract price adjusted at that time and that almost all of the works have been completed and made available to the public, with the exception of incomplete or unsatisfactory minor works which demonstrate the advantages of the works covered by the contract. » Measure. Gene. Law Chapter 30, Section 39G In contrast, boston`s Central Artery/Tunnel Project, colloquially known as the Big Dig, was a major diversion of Interstate Highway 93 through a newly built tunnel in the middle of the city. The Massachusetts Highway Department (MHD) estimated its lump sum damages based on „historical data adjusted for the probability of impact, as well as estimates of management and other costs.“ This method is applied on a case-by-case basis, unlike a general project such as the Boston Harbor Cleanup Project. According to FindLaw, MHD`s approach was more reasonable and less likely to be successfully challenged in court. For example, the amount must be reasonable. Lump sum damages are not intended to penalise contractors and therefore cannot amount to an amount that could be considered excessive or punitive. For example, $20 to $25 per day for every $100,000 of the contract price. The owner cannot choose an amount so high that he would not withstand a legal challenge.
The landlord may also need to prove that the amount corresponds to their actual expected financial losses and how they calculated the number in the contract. The applicability of lump-sum damages may also depend on the person responsible for the delay. If the owner is responsible himself or directly contributed to the delay, it could be much more difficult, if not impossible, for him to claim lump sum damages. A court could even grant an extension to a contractor before the damage occurs if the reason for the delay is deemed excusable. Construction contracts are bound by the laws and regulations of state law. Differences between jurisdiction and location may affect your rights and obligations under the contract, but more importantly, may affect the validity of the contract itself. The nature of the project and the nature of the parties involved may also change the effects of a contract and lump-sum compensation clauses from one place to another. It is very important that you know the rules of your site so that your contracts are simple and enforceable. Lump sum damages are used „to attribute the consequences of a breach before it occurs,“ Jennie-O Foods, Inc.c. United States, 580 F.2d 400, 412 (Ct.Cl.1978) (per curiam), which „saves the time and cost of litigation on the question of damages“, DJ Mfg.