This topic is for all questions raised on our webinar “Consequences of failing to complete the works before the completion date and LADs under JCT D&B Contract”. If you haven’t already attended it, you can sign up here Webinar - Consequences Failing to Complete the Works Before the Comple | Built Intelligence
What’s it about?
The aim of this webinar is to describe the consequences of failure to complete the works before the completion date and what is meant by Liquated and Ascertained Damages (LADs) under the JCT Design and Build Contract.
You will learn
By the end of this webinar you will be able to:
- Explain in brief the consequences for the contractor of failing to complete the works before the completion date under DB16 and key case law.
- Explain the definition of liquidated and ascertained damages or LADs and the relevant case law about them.
@stevencevans
You stated that the ‘old’ belief was just that L&AD should be a genuine pre-estimate. The later comments seemed to reinforce this presumption, not contradict it. Is that correct or did I miss something?
Please distinguish between the 3 notices?
It used to be that the LADs must be a genuine pre-estimate of the loss, but recent case law now suggests that the court will take into account other factors such as the commercial interest of the parties
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Thank you for your reply and update.
How does this work if there is no penalty for non completion?
With regard to calculation of LADs, a common head of potential risk is loss of funding or funding clawback in the event of failure to meet milestones. Is there any elegant solution to include this in LADs? Otherwise LADs do not reflect actual potential loss at all, however if they are the only recourse for missing the completion date then they may well not look like actual potential risk.
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Under JCT Contracts should LAD include VAT? @stevencevans
In the UK the principle has been that ‘damages’ are treated as compensation so were exempt from the application of VAT. Her Majesty’s Revenue and Customs guidance has changed recently (see briefing note 12/20) which includes the possibility of such payments being treated as ‘supply’ or ‘consideration’.
The Supreme Court’s ruling in ‘Cavendish’ in 2015 considered ‘wider commercial interests’ that extend beyond the recovery of a genuine pre-estimate of loss as a component of a pre-determined damages assessment, which means that if such damages include ‘wider commercial interests’ then they may fall inside the scope of VAT, at least in part.
This is a very specialised subject, however, and one which is well beyond the expertise of virtually all construction professionals, so if you are faced with this situation I would take particular advice on this matter to ensure you don’t get ‘caught out’.
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Is having liquidated damages at £0 the same as having no liquidated damages therefore exposure to ascertained damages? @stevencevans
It is almost impossible to give general advice on this as it depends on the terms of the contract. Generally, if liquidated damages are expressed as ‘nil’, or zero, and there is a clause which states that liquidated damages are an exhastive remedy, and both provisions are clear and unambiguous, then liqiudated damages may well be zero.
Is the contractor liable for paying liquidated damages if the value of the remaining works is lower than the Liquidated damages amount? i.e. Would the contractor have to pay the employer the remaining fee over and above the value of the works?
@stevencevans