Liquidated Damages For Contractor Neglect

pdh2100

Hello everyone, drop kick at will, or provide advice. All is appreciated.

We have a clause in our contract that allows the client to assess $100 per day in Liquidated Damages if we are late on the project due to "contractor neglect."

Now here's the problem we have had on many occassions;
1. The job gets delayed because product does not arrive in a timely manner, a sub does something wrong, customer does not pay on time so we don't work, whatever.

2. Customer looks at the date we finish and says he/she doesn't want to pay us all they owe because of "liquidated damages" assessment.

3. We tell the customer, "no, the clause is for neglect, not busting your ever lovin arse to do this job right not matter what."

4. We end up in a fight over the definition.

The liquidated damages are a good selling point since so many in our industry run out on jobs without completing them. So I am wondering what you all think and what modification you might suggest to this contract practice.

thanks

paul

ProWallGuy

Only modification I would do is get rid of it. Seems like offering the client any opportunity to get back money, they will grab it, warranted or not. I have never heard of a clause like this before. Sure, it might be a good selling point, but I personally would sell on something else and dump this.
MHO

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Wallpaper Hanger St. Louis
Digital Murals Installation

Mike Finley

Um,, if you have a clause for liquidated damages why don't you have a clause that addresses the schedule being adjusted backwards when It's suicidal to offer anything without stipulations attached.

pdh2100

Mike, we do have a clause that handles just about every kind of reasonable and uncontrolable delay. The point I am making is simple. The customer often feels he/she has a right to charging us damages no matter what the reason for the delay.

Here's that clause:
In the event the Contractor is delayed in the prosecution of the work by acts of God, fire, flood or any other unavoidable casualties; or by labor strikes, late delivery of materials; or by neglect of the Owner; the time for completion of the work shall be extended for the same period as the delay occasioned by any of the aforementioned causes. The National Weather Service indicates 12 full rain days during the contract period if started within the next 15 days. These days will be automatically added to any work delivery date if they directly correlate to work stoppage or slowdown. Also listed among these causes are delays for cabinetry and delays directly caused by Utility providers and City Permitting and Inspections.

Rich Turley

Just wonderin--
do you have a clause paying you a bonus for every day you finish early?

Rich

PipeGuy

First, allowing the assessment of LD's in the abscence of providing for your collection of damages in consideration of delays to your work is very inequitable. After all, what's good for the goose...

Also, I think you're exposing yourself to LD's (delay clause or not) when you don't assert a timely Change Order request for adjustment of the contract price and/or time. Falling back on the delay clause at the end of the job doesn't get it done for you. You have to assert the claim for delay upon its recognition. If the cabinets aren't there when they're supposed to be, send the letter. Homeowner went out and left the house locked, send the letter. House full of sick kids and mom doesn't want you there, send the letter.

That being said, I try to strike any LD requirement I can or otherwise price the job higher (geater risk = higher price).

realpurty2

I'm with PWG to ditch it completely and find another selling point. But if it's important to you to keep it, would it work to clearly define what constitutes neglect in addition to very clear definitions of what is uncontrollable events or delays such as product availability, acts of God, etc. etc? Maybe it isn't the clause that's causing the disputes as much as the wording (or lack thereof) that is causing the problems?

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Woman in a Man's World.

Mike Finley

No you don't.


I'm reading that like a customer and it spends 90% of it's verbage talking about a tornado delaying you. You can argue if it does or not, but the bottom line is your customers feel the same way I do so what does it matter, obvously there is a problem with what you have written or you wouldn't be here asking about it. You need to address the exact issues individually and make sure you go over them before the project starts. Do you and the customer read the entire contract out loud together before you have them sign it, explaning each clause and what it means? Try it next time and I guarantee you won't have a customer trying to collect on you.

I have a two year warranty in writing I give customers. The warranty verbage is 1 paragraph, the definitions and exceptions are 10.

Also like Pipeguy is saying - you have to keep the customer informed when a delay occurs. Just because you know the project has been delayed doesn't mean the customer does.

I'm also like minded with the other thoughts here. #1 I wouldn't even have such a penalty in my contract, I see no benefit. #2 If I did have a penalty, I would also have to have a reward for finishing early.

pdh2100

thanks to all of you. I would love to hear tigerfan's view on this one as well. I am inclined to take it out of the contract. Our worse problem these days being in Hurricane Katrina land is the availability of supplies. The supplies fluctuate by month it seems and this causes delays. Finally, I also agree all the way with you about documenting every delay in a way that the customer can't avoid. We are doing this far better these days, but trying to get better. I just think that in general, a customer has no quams about putting it to the contractor. It is kind of a moral gap I have found.

Mike Finley

What exactly are your thoughts on the reasoning for having a clause like that in your contract? Have you had a lot of customers demanding something like that?

Sonny Lykos

Paul, what did you expect?

You're dealing with "the public". As such, integrity, character, ethics, etc. - all goes out the window, and because there are no guarantees in life other than death.

In my contract, under Section XVlll is stated:

A - The contractor shall not be responsible nor penalized for delays caused by events beyond his control or the control of his subcontractors or material suppliers, including but not limited to the following:

1. Strikes
2. Wars
3. Acts of God
4. Riots
5. Government regulations
6. Owners failure to make timely material selections
7. Owners failure to comply with section XII - Owner Responsibilities
8. Work required by Addendums, Additional Work Authorizations or Change Orders
9. Hidden, Concealed and Unforeseeable Conditions
10. Prolonged illnesses of contractor, subcontractor, or key employee(s).
11. Delays in receiving material(s) from vendors, of which we have no control.
12. Anything else of which we have no control.

You'll note that "no control" is overly emphasized.

Now let me tell you about the extremes some people, make that "animals" will go to. On 10/16/04 my 38 year old GC son Pete died unexpectedly of a Berry aneurysm. The following day, a Sat., son Tom started calling all of Pete's customers that had jobs in progress or to be started, and notified them of Pete's death. Tom told them that he would go over the schedule of his own jobs and get back to them the next week to see if he could squeeze their jobs in, or if not, recommend another contractor. Ditto for those whose jobs had not started yet, or Tom would send them a check for whatever deposit they gave Pete.

The very first person Tom called was a women who immediately told them, yelling, that Pete promised that he's install her countertops that coming Monday, and if they were not installed, she would not pay the payout that was due, and due, incidentally, before the tops installation. Another customer tried to force Tom to finish his job (about 1/2 way done) at the same price as his contract with Pete, and of which Pete had under estimated. He ended up suing Pete, Tom, Pete's estate (Tom was the Executor), and just about 3 months ago, he lost. The judge almost made him and his attorney new rear ends, and apologized to Tom.

So Paul, in short, wise up!

Mike Finley

Man, you really lowered my view of humanity reading that.

AAPaint

Umm...wow. There is no logical explanation on the planet for having a clause that gives the customer back money..........None.

Sorry to hear about Pete and Tom, Sonny. Very good example of how low people will stoop.

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-AAPaint

AA Quality Painting & Pressure Washing LLC
Jacksonville Painters
Jacksonville, FL.

Gordo

Paul,

It is unanimous that you should ditch the clause. People will try to take advantage of anything they can grab......even when you have a rock solid contract. Seems like you are just asking for trouble.

Sonny sorry to hear about our son. Life is precious and it pisses me off to hear what that client of Petes did. Just shows you most people care more about their things.

Gordo

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Looks like some pros were here.

go dart

i got a tip. present yourself and your company above the negitives, why would you even bring them up

Sonny Lykos

Thanks, guys. I only mentioned it to validate what I've stated here about telling my sons to treated customers as family, but make your contracts as though each of them are out to screw you. Occasionally, they both were glad they took Dad's advice.

Far to many newbies in our industry have this unrealistic idea of an ideal world where every person they meet is Peter Pan, too inexperienced to realize that Captain Hook is also waiting in the wings.

I wish I had a ten dollar bill for every time I heard even my own customers over these 34 years say to me: "It's nothing personal. It's only business." And the "It's only business" in their twisted, unethical minds means to them: "Now stick it to him." Remember, one of the most dangerous words in our language, but rarely stated is "rationalize". Sleazy people depend upon the definition of that word to "justify" what they are about to do or have done.

Some guys rationalize cheating on their wives, and betraying her trust because she got fat, is lazy, became unattractive to him, yadda, yadda, yadda. Some employees steal from their employer and rationalize that betrayal by telling himself that he should be getting more money per hour - so "he" deserves" what he "stole."

Sex, money, and power involved - and the rationalizations spill out like water. Our customers are no different. And that's why Mike and I have "almost" foolproof contracts. One can never have a 100% foolproof contract only because the public is continually devising new and ingenious "rationalizations" on why they should not pay us. And that's why years ago I stopped "breaking my teeth" as my Ma would say, and just call "Bubba." At my age it gets old real quick.

And that's why Paul has to learn the realities and address, on a daily basis, the Captain Hooks out there. If not they will rip him apart.

When my kids were younger and got screwed by a supposed good friend who had a questionable character to begin with, I'd tell them Aesop's fable about the scorpion and the tortoise. I just started telling my 37 single daughter a couple of nights ago and when I started she said: "I know Dad!"

"Apparently, Kristi, you STILL haven't learned from it."

pdh2100

Thank you all, every one. You have given wonderful direction and absolutely incredible life experience. This message marks the removal of LD from our contracts. Even the nicest customer seems to look for a way to put it to you if you give them a chance. Thanks again, I have saved this thread and put it in the console in my truck. I call it my "backbone file." Truly, contractortalk.com has been good to me and I hope I can return the favor ten fold. - paul

Sonny Lykos

You're welcome, Paul, and don't consider it to be a favor when you are in a position to help someone else. Think of it as a responsibility, when acting as an older, wiser "team" member teaching other younger members of the team on how to CYA and "make" money instead of "losing" it, possibly along with their sanity.

Stay smart.

Sider' Brian

Only modification I would do is get rid of it.

Gotta agree with Pro on this one. Nothing wrong with a written time frame but when money come into play some will just see an opportunity to take advantage.

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http://wellworthonline.com

Ken@K&R

Auctually I have worked for a few companys with clauses like that. Some of them were up to $1,000 a day in fines to the owner. One catch here though they were very large companys. One electrical contractor had 300 electricians. They did large projects and really never needed to pay on the clause. If the time was short add another 20 electricians into the mix and walla ahead of schedual. Oh and yes they got rather nice bonuses for getting the work done early too. 1 job ended with $1,000,000 in bonuses. BTW the crew got a whole $100 each. A large home builder we worked for also had the same type of system they paid $100 per day based on a completion time. I would never offer it myself. Hell I never even been asked for a completion date and I sure never offered one up.

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Ken