Keeping Your Project on Track: Delay Penalties in EPC Contracts
Deadlines matter. In an EPC contract, delays can cost you money.
Here’s how to ensure clear expectations and manage potential setbacks:
- Liquidated Damages (LDs): A Fair Estimate, Not a Punishment
- Let’s talk about consequences for missed deadlines. LDs are predetermined fees the contractor pays if the project runs late. However, these fees should be a reasonable estimate of your actual losses, not a punitive measure.
- Focus on the Finish Line, Not Every Step
- LDs should only kick in when the project misses the final completion date, not for minor delays in reaching interim milestones. This encourages the contractor to focus on overall progress without getting bogged down by minor setbacks.
- Transparency is Key: LD Rates and Caps
- The contract should clearly outline the daily, weekly, or monthly rate for LDs. Additionally, a maximum cap should be established to limit your financial exposure in case of significant delays.
- Sole Remedy, Full Settlement
- LDs should be the only recourse for delays. This avoids drawn-out legal battles and ensures a clean resolution.
- Reaching the Limit: Termination with Options
- If the contractor misses the deadline and reaches the LD cap, you have the right to terminate the contract. However, the contract should allow you to accept the completed work (with adjustments for delays) instead of scrapping the entire project.
- A Second Chance: Cure Period Before Termination
- Before resorting to termination, the contract should provide a defined “cure period” for the contractor to get back on track.This aligns with a conservative approach, offering a chance to rectify the situation before taking drastic measures.
By incorporating these provisions, your EPC contract fosters clear communication and establishes a fair framework for managing delays. Both you and the contractor can focus on delivering the project on time and within budget.
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