Delay Damages from Contractor to Subcontractor - Penalty?

The scenario:

  • Delay damages X7 are the same in the subcontract as they are in the main contract.

  • Subcontract completion date has passed. All attempts to amend the completion date due to M/C delays have been rejected.

  • Main contract completion date has not yet been reached.

Would the damages be considered a penalty if the main contractor has suffered no loss at all? Is there a primary obligation here that triggers a secondary one and is there a legitimate interest or is the M/C just simply profiting from the breach? If there is a legitimate interest then would the level of damages be unconscionable?

Hi, the damages were detailed in the subcontract when the Subcontractor signed it so they cannot now claim against them, there is recent case law on this see Mansion Place Limited v Fox Industrial Services Limited [2021] EWHC 2972 (TCC). In this it was decided “the level of damages was accepted by the Defendant at the outset as being appropriate…” and therefore the rate could not be “wholly disproportionate”.
If the Subcontractor is in delay then I think it is difficult to say that the MC is not suffering a loss, how do we know they are not, possible increased management costs and may be claims from other Subcontractor’s affected by the delay, etc?
Happy to discuss.

Further to Steve’s response, you would have to refer to the time the subcontract was made, as the test is done on a prospective basis, not in hindsight; therefore the 3rd bullet point is not relevant.

1st bullet point: The level of the damages being the same with the main contract’s would make sense if, when the contract was made, delay to subcontract Completion would delay the main contract Completion - essentially, the subcontract Completion would have to be on the critical path of the main contract programme.

2nd bullet point does not seem relevant to the penalty test, it is more of a dispute regarding a CE or CEs.

Regarding your question about the main contractor’s suffered loss, see above; you need to go back in time and see on what basis were the delay damages set and the respective legitimate interest (if any).

Whether it is a conditional primary or a secondary obligation will turn on the facts and the construction of the clause (if amended).

I hope this helps.