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A fixed stipulated sum of penalty payable by the contractor having no relationship with real damage is known as?
- a)Compensatory payment
- b)Liquidated damage
- c)Fixed penalty
- d)Damage charge
Correct answer is option 'B'. Can you explain this answer?
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A fixed stipulated sum of penalty payable by the contractor having no...
Liquidated damages: These are damages defined in the construction contract and chargeable against funds due to the contractor for each day the contractor fails to complete the project beyond the contract completion date.
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A fixed stipulated sum of penalty payable by the contractor having no...
Liquidated damages
Liquidated damages are a fixed stipulated sum of penalty payable by the contractor having no relationship with real damage. It is a predetermined amount of compensation agreed upon by both parties at the time of contract signing, which the contractor will pay in case of any delay or breach of contract.
Purpose
The purpose of liquidated damages is to compensate the owner for the losses incurred due to the contractor's default, delay or breach of contract. It also provides certainty and predictability in terms of the amount of compensation to be paid by the contractor in case of default.
Calculation
Liquidated damages are calculated based on the time of delay and the value of the contract. The amount of liquidated damages is usually a percentage of the contract value per day of delay. For example, if the contract value is $1 million and the liquidated damages are set at 0.1% per day, the contractor would have to pay $1,000 per day of delay.
Enforcement
Liquidated damages are enforceable only if they are reasonable and do not exceed the actual losses incurred by the owner due to the contractor's default. If the liquidated damages are found to be excessive or punitive, they may be considered unenforceable.
Conclusion
In summary, liquidated damages are a predetermined amount of compensation agreed upon by both parties at the time of contract signing, which the contractor will pay in case of any delay or breach of contract. It provides certainty and predictability in terms of the amount of compensation to be paid by the contractor in case of default.
Liquidated damages are a fixed stipulated sum of penalty payable by the contractor having no relationship with real damage. It is a predetermined amount of compensation agreed upon by both parties at the time of contract signing, which the contractor will pay in case of any delay or breach of contract.
Purpose
The purpose of liquidated damages is to compensate the owner for the losses incurred due to the contractor's default, delay or breach of contract. It also provides certainty and predictability in terms of the amount of compensation to be paid by the contractor in case of default.
Calculation
Liquidated damages are calculated based on the time of delay and the value of the contract. The amount of liquidated damages is usually a percentage of the contract value per day of delay. For example, if the contract value is $1 million and the liquidated damages are set at 0.1% per day, the contractor would have to pay $1,000 per day of delay.
Enforcement
Liquidated damages are enforceable only if they are reasonable and do not exceed the actual losses incurred by the owner due to the contractor's default. If the liquidated damages are found to be excessive or punitive, they may be considered unenforceable.
Conclusion
In summary, liquidated damages are a predetermined amount of compensation agreed upon by both parties at the time of contract signing, which the contractor will pay in case of any delay or breach of contract. It provides certainty and predictability in terms of the amount of compensation to be paid by the contractor in case of default.
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