search
cart
facebook twitter linkedin youtube instagram Spotify Podcasts Apple Podcasts Spotify Podcasts Apple Podcasts
  • Sign In
  • Create Account
  • Sign Out
  • My Account
  • NEWS
  • TOPICS
    • Cool Roofing
    • Event News
    • Latinos in Roofing
    • Low Slope
    • Legal
    • Metal
    • Project Profiles
    • Roofing Supply Pro
    • Roofing Safety
    • Steep Slope
    • Sustainable Roofing
    • Technology
  • EXCLUSIVES
    • Best of Success
    • Contractor Profile
    • IRE Show
    • Roofing Contractor of the Year
      • Enter Roofing Contractor of the Year
    • Top 100
      • Enter the Top 100
    • Young Guns
    • State of the Industry
    • Century Club
  • MULTIMEDIA
    • Videos
    • Podcasts
    • Interactive Spotlights
    • Roofing Quizzes
    • IRE Videos
    • Webinars
    • Photo Galleries
  • PRODUCTS
    • New Products
    • Featured Products
  • COLUMNS
    • Editor's Note
    • Exit Planning
    • Legally Speaking
    • Safety Advice
    • Technical Details
    • Guest Column
  • EVENTS
    • International Roofing Expo
    • Webinars
    • Best of Success Conference
    • Industry Events
  • DIRECTORY
    • Associations
    • Distributors
    • Manufacturer/Supplier
    • Business Services
    • Get Listed
  • MORE
    • Roofing Contractor eNews
    • RC Store
    • Roofing Supply Pro
    • Custom Content & Marketing Services
    • Market Research
    • Sponsor Insights
    • Company Spotlights
    • Classifieds
      • Auctions
      • Business For Sale
      • Business Opportunities
      • Equipment For Sale
      • Positions Available
      • Products
      • Safety
      • Software
      • Services
      • Training
    • Contact Us
  • EMAGAZINE
    • eMagazine
    • Advertise
      • Media Kit
      • Editorial Calendar
      • Contact
    • Archive Issues
  • SIGN UP!
Columns

Legally Speaking: Liquidated Damages Provisions in Construction Contracts

By Trent Cotney
June 15, 2011
Liquidated damages are a fact of life in modern construction contracting. However, even if your contract contains a liquidated damages provision and the owner has assessed liquidated damages, that does not mean the assessment is valid or enforceable.



Liquidated damages are a fact of life in modern construction contracting. However, even if your contract contains a liquidated damages provision and the owner has assessed liquidated damages, that does not mean the assessment is valid or enforceable. There are a number of ways you might be able to prevent an owner from keeping contract proceeds that are rightfully yours. This article will provide the reader with an idea or two that will help keep hard-earned contract proceeds in the contractor’s pocket.

In a breach of contract situation, liquidated damages are designed to provide a means to compensate the non-breaching party when the actual damages are not readily ascertainable. In other words, when the non-breaching party’s actual damages will be difficult to determine in the event of a breach, then the parties are allowed to stipulate in their contract that a set sum of money will be paid in lieu of having to prove the actual damages. In construction contracts, the liquidated damages clause is usually tied to timely completion of the work by the contractor and usually allows the project owner to collect liquidated damages upon late completion. For example, for each day that the work is not complete past an agreed upon date, the contractor will have to pay the owner X amount per day. Liquidated damages can be agreed to in any type of contract, and not just construction contracts. In a real estate sales contract, the parties might stipulate in their contract that if the buyer reneges and fails to close, then the seller gets to keep the earnest money deposited by the buyer.

Is it Really a Penalty?

A liquidated damages amount is intended to compensate the owner for the other party’s breach of the contract. If the provision seeks to do anything other than provide reasonable compensation, then the clause is really a penalty and, as such, will not be enforced. Merely because the parties title the provision as a “liquidated damages” provision is not determinative of whether it is really a penalty. Whether a provision is a valid liquidated damages clause or an unenforceable penalty depends on the facts of each case.

For example, if a provision that is labeled “liquidated damages” is not intended to compensate the owner, but is really intended to coerce the contractor into completing the work on time, rather than compensating the owner for delay damages, then the clause is a penalty. Similarly, if at the time the parties entered into the contract, the owner’s actual damages are “reasonably ascertainable,” then there is no reason to stipulate to the liquidated damages amount and it will not be enforced.

Another argument that has succeeded in voiding an otherwise valid liquidated damages clause is where the liquidated damages amount “shocks the conscience” of the court. In other words, if the stipulated sum is simply too great in comparison to the contract value itself, then the liquidated damages will not be enforced. This analysis compares the stipulated sum with the contract value. For example, in Hook v. Bomar, 320 F.2d 536 (5th Cir. 1968), the loss of a $30,000 deposit on a $95,000 contract was found unconscionable, and the liquidated damages provision was not enforced.

Furthermore, liquidated damages also are not enforceable if the non-breaching party contributed to the other party’s default. In a construction contract setting, if the owner contributed to the delay in the completion of the contract, then the owner is not permitted to assess the daily liquidated damages for those delay days caused or contributed to by the owner.

Liquidated damages tied to completion of the work generally cannot be assessed after the project has reached substantial completion. Liquidated damages are intended to compensate the owner for late completion, and by definition at substantial completion the owner has functional use of the project. Thus, at substantial completion, the owner is no longer incurring damages.

By way of illustration, on a construction project an owner may want $1,000 per day in liquidated damages to compensate the owner for lost rent and extended project administration for each day the work is not complete. However, once the project is substantially completed, the owner can rent the property, so that portion of the owner’s damages included within the stipulated $1,000 per day is no longer being incurred. If the owner seeks the entire liquidated damages amount for days after substantial completion until final completion, a strong argument can be made that no post-substantial completion liquidated damages are allowed even if the owner is incurring continued administration costs. The better liquidated damages clause would state that upon substantial completion, the liquidated damages will be reduced to $500 per day or some other reasonable figure to compensate the owner for the extended project administration required to obtain final completion of the project.

Owners routinely withhold contract proceeds under the argument that the contractor is liable for liquidated damages. However, even if it appears that the liquidated damages are proper, the prudent contractor will not accept the assessment at face value because there are many ways to defeat a liquidated damages clause. Hopefully, this article will provide the reader with a way to recover the withheld funds.

Author’s note: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.
KEYWORDS: AEC industry business management

Share This Story

Looking for a reprint of this article?
From high-res PDFs to custom plaques, order your copy today!

Trent cotney
Trent Cotney is a Partner with Adams & Reese and a Florida Bar Board Certified Construction Lawyer, licensed to practice in multiple states across the U.S. and in Canada. With nearly 25 years of experience, Trent has dedicated his career to serving the construction and roofing industries. He is a zealous advocate for the international commercial roofing sector and serves as general counsel for over 10 prominent trade associations and organizations, including the National Roofing Contractors Association (NRCA), Florida Roofing & Sheet Metal Contractors Association (FRSA), National Slate Association, Roofing Technology Think Tank (RT3), and Western States Roofing Contractors Association (WSRCA). Trent’s commitment to the industry extends beyond legal counsel; he is an active participant in education, advocacy, and innovation, working tirelessly to address the challenges contractors face and advance the industry as a whole. Known for his deep understanding of construction law and unwavering dedication, Trent Cotney remains a trusted advisor and leader in the roofing community.

Recommended Content

JOIN TODAY
to unlock your recommendations.

Already have an account? Sign In

  • Roofing Contractor Group Publisher Jill Bloom

    Physics, the Power of Authenticity and You

    In February's Publisher's Note, Jill Bloom describes a...
    Columns
    By: Jill Bloom
  • The Family Food Fare supermarket in Midland, Mich.

    ‘Rooftop Ninja’ Discovered Living on Roof, Inside Grocery Sign

    A bizarre tale out of Midland, Mich.: a woman dubbed the...
    Roofing News
    By: Bryan Gottlieb
  • A before and after heat measurement comparison

    How Hot is Too Hot in the Attic?

    If the ventilation is working, how hot should the attic...
    Sustainable Roofing
    By: Paul Scelsi
You must login or register in order to post a comment.

Report Abusive Comment

Subscribe For Free!
  • eMagazine Subscription
  • Sign Up for the eNewsletter
  • Online Registration
  • Manage My Preferences
  • Subscription Customer Service

More Videos

Sponsored Content

Sponsored Content is a special paid section where industry companies provide high quality, objective, non-commercial content around topics of interest to the Roofing Contractor audience. All Sponsored Content is supplied by the advertising company and any opinions expressed in this article are those of the author and not necessarily reflect the views of Roofing Contractor or its parent company, BNP Media. Interested in participating in our Sponsored Content section? Contact your local rep!

close
  • Snow Guard Solutions for Metal Roofs by S-5!
    Sponsored byS-5!

    Safeguard Your Building: How Snow Guards Prevent Costly Roof & Property Damage

  • A hand holding a wooden block that reads 'EVOLVE'
    Sponsored byWatercress Financial

    Embracing Change: A New Era for the Roofing Industry

Popular Stories

QXO closed its acquisition of Beacon Building Supply on April 29, 2025.

QXO Closes Beacon Acquisition, Rebrands Immediately; Jacobs to Ring NYSE Bell

Dear Anna Podcast Lead Generation Optimization featuring Anna Anderson

Dear Anna: How Can I Optimize Lead Generation?

hourglass-with-blue-sand-black-background

QXO Extends Offer to Acquire Beacon Once More Before Closing Deal

Roofing Contractor Webinar

Events

May 22, 2025

Remote Teams 101: The New Way to Hire

Our industry experts will guide you through what remote hiring and outsourcing should look like, how it can help you grow, and why it’s easier (and less scary) than you might think. If you want to save time, find great talent, and grow your business, this is one session you don’t want to miss!

December 3, 2025

The Premier Roofing Conference: Best of Success

Join roofing professionals from across the nation at the 2025 Best of Success conference, the ultimate destination for roofing professionals seeking the latest industry insights and networking opportunities. Pick up strategies for critical challenges like workforce shortage with innovative solutions, explore the latest advancements in roofing technology and sustainable practices, and gain valuable insights from industry leaders on navigating the evolving roofing landscape.

View All Submit An Event

Related Articles

  • marijuana in the workplace

    Are Employers’ Rights Up In Smoke?

    See More
  • contract-provisions

    10 Ways Roofing Contractors Can Avoid Latent Defect Claims

    See More
  • Why is trade marking in roofing important?

    Why Trademarks Matter in Roofing

    See More

Related Products

See More Products
  • 9780128207918.jpg

    Eco-efficient Materials for Reducing Cooling Needs in Buildings and Construction 1st Edition

  • contractorlaw.jpg

    Construction Law: An Introduction for Engineers, Architects, and Contractors

  • business.png

    How to Succeed With Your Own Construction Business

See More Products
×

Be in the forefront of the roofing industry!

Join thousands of professionals today. Shouldn’t you know what they know?

JOIN NOW!
  • RESOURCES
    • Advertise
    • Contact Us
    • Directories
    • Store
    • Want More
  • SIGN UP TODAY
    • Create Account
    • eMagazine
    • eNewsletter
    • Customer Service
    • Manage Preferences
  • SERVICES
    • Marketing Services
    • Reprints
    • Market Research
    • List Rental
    • Survey/Respondent Access
  • STAY CONNECTED
    • LinkedIn
    • Facebook
    • Instagram
    • YouTube
    • X
  • PRIVACY
    • PRIVACY POLICY
    • TERMS & CONDITIONS
    • DO NOT SELL MY PERSONAL INFORMATION
    • PRIVACY REQUEST
    • ACCESSIBILITY

Copyright ©2025. All Rights Reserved BNP Media.

Design, CMS, Hosting & Web Development :: ePublishing