Liquidated Damages

# Chapter 22: Liquidated Damages  Let's talk about liquidated damages, because you'll be dealing with these from day one in practice. They're essentially a deal made upfront about what delays will cost, and as the architect administering the contract, you're often the one deciding whether they kick in. Picture this scenario: your client's apartment building is running three weeks late. Without liquidated damages, they'd need to prove every dollar of loss in court, lost rent, extra financing, management costs. Instead, the contract already sets the price at, say, $1,500 per week. Everyone knew this number from the start, which makes the conversation much simpler. But here's where it gets interesting, that $1,500 wasn't plucked from thin air. It needs to be a genuine attempt at estimating real losses, calculated when the contract was signed, not afterwards when emotions run high. The landscape just shifted with AS 4000:2025, released in June. For the first time in 28 years, we have a major update that changes when liquidated damages stop accumulating. Previously, they ceased when you issued the practical completion certificate. Now, they can stop when the building is actually complete, even if your certificate comes later. You might wonder why this matters, imagine a project finishes on a Friday, but you don't inspect and certify until the following Tuesday. Under the new rules, those four days might not attract liquidated damages. This puts more pressure on you to document exactly when completion occurred, not just when you certified it. Now, here's something that trips up many early-career architects: the prevention principle. This legal concept essentially says that if an owner prevents the contractor from finishing on time, they can't then charge liquidated damages for that delay. Think of it like this, you can't push someone into a pool then fine them for being wet. Where you come in is through extension of time assessments. When the owner causes a delay, perhaps through late design changes or delayed site access, you need to formally extend the completion date. Miss this step, and the entire liquidated damages mechanism could collapse, leaving your client with nothing despite legitimate contractor-caused delays on top of their own delays. The courts have recently upended another common practice. For years, contracts included nominal liquidated damages like one dollar per day, thinking this capped the owner's recovery. The 2024 Carbone v Fowler Homes case destroyed this assumption. The court said that unless the contract explicitly states these nominal amounts replace all other damages, the owner can still pursue actual losses. Those standard HIA contracts with default $250 weekly liquidated damages? They're essentially worthless unless properly amended to reflect genuine anticipated costs. So what are genuine rates? In Victorian residential projects, you're looking at $350 to $2,000 weekly, depending on the project value and financing structure. Commercial projects commonly run $20 to $25 daily per $100,000 of contract value. These numbers come from real calculations, mortgage interest at current rates around five percent, temporary accommodation costs averaging $600 weekly, extended professional fees, and project management overheads. When you're advising clients, you need to ensure these calculations happen at contract formation and get properly documented. A quantity surveyor's assessment carries weight if the amount is ever challenged. Your professional obligations here are strict. The Architects Regulations 2015 require you to act with integrity, fairness, and impartiality when administering contracts. This means you can't favour your client when assessing extensions of time or determining practical completion. You're wearing your contract administrator hat, not your designer hat. Every decision needs documentation that could withstand scrutiny years later, remember, you must keep these records for ten years minimum, and building actions can be brought up to ten years after completion. The intersection with Victoria's Security of Payment Act adds another layer. Liquidated damages are excluded amounts under the Act, meaning contractors can't have them deducted from progress payments through the adjudication process. If a builder claims payment and the owner wants to deduct liquidated damages, the owner must pay first and argue later in court. This shifts the cashflow dynamics significantly and often surprises clients who assume they can simply withhold the amounts. **Key Terms:** - **Genuine pre-estimate**: A reasonable calculation of expected losses made at contract signing, based on demonstrable costs like financing and lost revenue, not an arbitrary penalty - **Prevention principle**: The legal rule that invalidates liquidated damages when the owner's actions prevent timely completion without granting appropriate time extensions - **Practical completion**: The milestone when works are complete enough for occupation and liquidated damages cease, now potentially occurring before superintendent certification under AS 4000:2025 - **Extension of time (EOT)**: A formal adjustment to the completion date that preserves liquidated damages entitlements when delays aren't the contractor's fault - **Concurrent delay**: When both owner and contractor cause overlapping delays, requiring careful analysis to apportion responsibility fairly - **Excluded amounts**: Under the Security of Payment Act, liquidated damages that cannot be deducted from progress payment claims through adjudication