The Contractor and the Owner acknowledge that time is crucial, as specified in paragraph 4.01 above, and that the Owner will suffer financial and other losses if the Work is not completed and milestones are not reached within the contract deadlines, as duly modified. The parties also acknowledge the delays, costs and difficulties associated with proving the actual loss of the owner in a legal or arbitration proceeding if the work is not completed on time. Therefore, instead of requiring such proof, owners and contractors agree that as lump sum damages for delay (but not as a penalty): Delays in completing construction projects are good for owners and contractors. The owner wants to use the finished product as quickly as possible so that he can enjoy the benefits of his investment. A contractor who allocates resources to a project wants to ensure that those resources generate a reasonable return. A delayed project can undermine profits and prevent the use of resources elsewhere. If you need help understanding lump sum damages versus penalties, you can publish your legal requirements on the UpCounsel marketplace. UpCounsel only accepts the top 5% of lawyers on its website. UpCounsel`s lawyers come from law schools such as Harvard Law and Yale Law and have an average of 14 years of legal experience, including working with or on behalf of companies such as Google, Menlo Ventures and Airbnb. Damages and lump-sum penalties are very common legal terms that often cause confusion among legal professionals in the civil justice system, not to mention citizens.
The reason for this confusion is that many courts do not correctly distinguish between the term penalty and the term lump sum damages, and in fact, most courts use the terms penalty and lump sum damages interchangeably in the context of a dispute. Another common approach is to establish a schedule for predetermined lump sum damages based on the contract price, such as .B. “For the Contractor`s failure to achieve completion of materials prior to the Contract Period, the lump sum damages will be as follows: $500 per day if the contract price is $1,000,000 or less; $1,500 per day if the contract price is $1,000,001 to $5,000,000;$2,500 per day if the contract price is $5,000,001 to $10,000,000. Such provisions may be considered arbitrary and capricious and therefore unenforceable, as they appear to have little or no connection with the amount that the owner could reasonably expect it to be damaged due to the contractor`s late performance. However, this approach is quite common, especially with construction contracts issued by state transportation departments. Despite their frequent use, this author advises against a rigid and formal link between lump sum damages and the contract price. The breach of contract – the inability to finish on time – must have been difficult to determine at the time of performance of the contract. After all these calculations have been made, it is necessary to compare the total value of the damage with the order value of the goods. If the amount is high compared to the value of the order, it must be reduced to an amount that a supplier can accept.
Ultimately, when the buyer needs the goods, they need to find a seller who is willing to deliver them. As a general rule, the possession or partial completion of part of the work entails the certification that these parts have reached practical completion, and thus to release the contractor from liability for lump sum damages for these parts. There is a causal link between all the damage that the contract is likely to suffer and the breach, i.e. the damage naturally results from the delay and must not be “removed”. The principle of “segregation” was established in 1854 in Hadley v. Baxendale. Notwithstanding the above, the contractor (most likely the weaker party) may still have defences to protect themselves in the civil justice system. The provisions on lump sum damages under the laws of the United Arab Emirates are in principle valid and enforceable. Article 389 of the civil law of the United Arab Emirates, which corresponds to article 221 of Egyptian civil law, allows a party to claim indirect damages resulting from the breach of contract by the other party, provided, however, that the contract does not estimate in advance the damage for these losses.
The relevant part of this legislation is this: it is important to carefully examine all contracts before signing them and assess their conditions. In contracts providing for lump-sum damages, it is important to understand the provisions relating to requests for extension of the deadline in the event of incidents affecting the on-time delivery. Duly documented requests for extensions of the contractual period, as well as the consultants` insistence on processing these requests promptly, go a long way in avoiding disputes over lump sum compensation and contract termination. There are at least two reasons why the contractor`s application for an extension should be rejected. First, the contractor`s delay was not critical. In accordance with the CPM theory and the precedence of delay discussed earlier in this chapter, the contractor`s delay simply consumed floating. The contractor cannot deny that it was responsible for delaying the project by 35 days long before the owner delayed the non-critical work. In common law jurisdictions, “lump sum damages” are defined as a reasonable “ex ante” estimate of actual losses: the party who suffers from the other party`s default receives predetermined compensation. The liquidation of the entrepreneur has nothing to do with lump sum or unliquidated damages, although these can always be claimed from a company in liquidation. Some forms of contract, such as the JCT form, provide for automatic determination in the event that a company is wound up but the contractor can be rehired in certain circumstances. It is for the court, if the entrepreneur can prove that the rate of lump sum damages has been grossly exaggerated, to reduce the said damages to an amount corresponding to the damage suffered.
However, the court is not required to reduce the amount to an amount corresponding to the damage actually suffered. The burden of proof that less or no damage occurred as a result of the delay lies with the party who intends to contest the amount of the damage agreed and imposed. Not all construction contracts include a lump sum compensation in case of late completion. If included, they are usually specified in the owner-contractor agreement as part of or next to the terms of the contract. Standard construction contracts from the American Institute of Architects (AIA) only provide for a contract period for substantial completion, while those from the Joint Committee on Engineering Contract Documents (EJCDC) include contract periods for substantial completion, final completion, and optional interim targets. Depending on the project, a lump sum compensation may be incurred for some or all of the contract periods. · It is in the nature of a lump-sum compensation clause that it is not necessary for the employer to prove that it has suffered loss or damage, so that lump sum damages are due because the employer`s claim arises with the occurrence of the triggering event. Since lump-sum compensation is intended to approximate actual damage, courts will consider whether the amount of lump-sum damages is based on a reasonable estimate of the actual damage suffered by the owner or contractor, or whether the amount of lump-sum damages was simply an arbitrary random amount. Finally, the court will consider whether the lump sum damages have a frightening relationship with the actual damage. The courts have ruled that lump sum damages, which are twice as high as actual damages, are proportional to actual damages.
Therefore, the party opposing lump sum damages must prove that the lump sum damages far exceed the actual damages in order to successfully impose an unenforceable penalty. · Parties entering into contracts should be aware that the amount of lump sum damages may be changed by a judge or arbitrator if the contract is governed by uae law. .