Liquidated Damages...
are a bass-ackwards way of controlling time to complete on construction projects. Was reminded of this pet peeve this morning when a past client emailed with news that only one bid was received on a project in San Francisco--his take was that it was due to an onerous liquidated damages ["LD"] provision in the bid documents.
I will be the first to admit that clients like LD's as a stick to get performance. The problem is that this tool comes into play too late, and delays are often well documented from the contractor's side. The truth of the matter is that LD provisions are largely ineffective, and if you are planning on using one, you need to double the amount of legal work you have budgeted for your project.
The solution? Know the direction your team is moving in. Manage your milestones. Do you know what your next three milestones are? Know the numbers behind your schedules. And work through changes very carefully.
Most contractors I have had the pleasure of working with think LD's are capriciously assessed, and more a way to run up attorney's fees than get quality construction. I tend to leave LD provisions out of my contracts, but get very well written schedule reporting and recovery language into all my contracts--tied with progress payments. Catch the team vectoring off course early, and correct the course at that time. Recovery is the name of the game--get a good schedule and stay on top of it.
An ounce of prevention is worth way more than an onerous LD provision.
