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Offshore Construction Contracting Principles

Liquidated Damages

Principles

It is recommended that the following principles be applied in relation to Liquidated Damages ("LD's") under offshore construction contracts:

In the event of a delay to either one of the key dates agreed in the Contract, for which Contractor is solely responsible, Contractor shall pay pre-agreed LD's to Company.

  • Such Liquidated Damages shall be subject to a maximum [of typically ten percent (10%) of the Initial Contract Price]; and
  • Such LD's shall be deemed to be a genuine pre-estimate of the foreseeable damages incurred by Company; and
  • Such Liquidated Damages shall be Company's sole recourse for late performance by Contractor.

For the purpose of calculating such Liquidated Damages,

  • A grace period [typically ten (10) days] shall be observed; and
  • The Contract Schedule shall be extended by any additional time or delays outside the sole control of Contractor or delay not caused by Subcontractor, including but not necessarily limited to suspension by Company or Contractor in accordance with the Contract, any weather downtime, delay due to Force Majeure, and any time spent or lost on additional work or standby.

Clarifications / Considerations

A marine contractor performs its duties in a hostile and unreliable environment in which progress is dependent on many factors outside its own control.

Due to competition with other contractors it is impossible for Contractor to include sufficient allowance in the Contract Price to enable Contractor to assume liability for any and all damages that may be incurred by Company in the event of delay caused by Contractor.


Example Liquidated Damages Clause

The following is an example of a proper Liquidated Damages article.

X. LIQUIDATED DAMAGES

In the event of a delay to the Offshore Installation Completion Date as per the Contract Schedule for which Contractor is solely responsible, Contractor shall pay Liquidated Damages to Company at a rate of a quarter of a percent (0.25%) per day of delay, subject to a maximum of ten percent (10%) of the Initial Contract Price.

Such Liquidated Damages shall be deemed to be a genuine pre-estimate of the foreseeable damages incurred by Company due to delay and shall be Company's sole recourse for late performance by Contractor under the Contract.

For the purpose of calculating such Liquidated Damages, a grace period of ten (10) days shall be observed, and the Contract Schedule shall be extended by any additional time or delays outside the sole control of Contractor or delay not caused by Contractor, including but not limited to suspension by Company or Contractor in accordance with the Contract, delay due to weather downtime, delay due to Force Majeure, and any time spent or lost on additional work or standby.