Whether or not there is a penalty for a contractor failing to finish on time depends on what the contract says about the completion date and what happens if construction is not completed by that date. Because the contracts are so very different in residential and commercial construction, I will address each separately.
Penalties for Missing Completion Dates in Commercial Construction
In Commercial construction, it is common to have a specific completion date and a penalty for failure to complete the construction by that date. Normally the penalty for not completing the construction by the specified completion date is liquidated damages. Liquidated damages are a per day charge, ranging from $100 – $1,000 per day, for each day the construction goes past the specified completion date.
How to Avoid Liquidated Damages in Commercial Projects
Some ways to prevent being charged liquidated damages:
- First, make sure the schedule attached to the contract you signed has an accurate completion date. The date in the contract is the date that liquidated damages will be based upon, so make sure it is accurate.
- Second, if there is a change order for extra work that will affect your completion date make sure to include an updated completion date in the change order. Don’t assume that everyone will know the extra work will take extra time; the only way to change the completion date in the contract is in writing, signed by both parties.
- Lastly, when final payment on a commercial project, liquidated damages can be used to reduce the amount you are owed. If you are a subcontractor and the general contractor tries to back-charge you for liquidated damages for not completing on time, ask for proof that the general contractor has been charged liquidated damages from the owner.
Although you may not have finished on time if the owner did not charge the general contractor liquidated damages, you, the subcontractor, should not be charged liquidated damages.
Completion Dates in Residential Construction Contracts
In residential construction the contractor normally writes the contract for their customer to sign, so they have control over if there is a penalty for failure to complete the project by a certain date. Most homeowners want a projected completion date in the contract.
Strategies to Manage Completion Dates in Residential Projects
The advice I give to my clients is give yourself more than enough time to complete the project and add language to the contract that would allow you to add time to the completion date if something unforeseen happens. Also, it is a good idea to have in your contract that if the homeowner is late in making the required selections time will be added to the completion date. In addition, if the homeowner requests a change order that will also require more time make sure the change order includes an updated completion date. In residential construction, the contractor has control over whether a penalty is included in the contract.
Need Help with Liquidated Damages or Contract Terms?
If you have a question if liquidated damages are included in your commercial construction contract or on what language to add to your residential to ensure there is no penalty for falling to complete the project on the original project completion date, see our flat fee pricing.
