Apportioning subcontractors’ liability for project delays; a consensus approach

Thumbnail Image
Journal Title
Journal ISSN
Volume Title
The British University in Dubai (BUiD)
Most construction contracts make use of the “Liquidated Damages” clause for dealing with damages due to delay. As it is difficult and sometimes impractical to evaluate the exact losses accrued due to the late handover of the project, the employer and main contractor pre agree an estimated sum which will be due to the employer for each day of the delay. Although, this satisfactorily addresses the liability issues between the owner and main contractor, a large portion of the works are indeed executed by subcontractors and currently there is no single standard method in use to satisfactorily assess subcontractors’ liability for delay. Unlike in the case of the main contract between the owner and the main contractor, where Liquidated Damages (LD) or a pre estimate of the damages are pre agreed, the use of similar LDs or a component of the same in some form or the other has often led to disputes between the parties. It is quite straight forward when it comes to allocating liability to subcontractors for defects in their work, owing to poor quality of materials and/or workmanship. However, when it comes to attributing contractual liability for delays there is no straight forward method for apportioning the liabilities to the subcontractors, without carrying the risk of either over burdening the subcontractor with unreasonable damages or causing under-recovery by the main contractor due to limits that are imposed on the LDs recoverable under the subcontracts. Main contracts mostly contain mechanisms for allocating the liability for delays, which commonly manifests in the form of “Liquidated Damages” (LD) provisions of the contract, normally a pre-estimate of the employer’s loss for each day of the delay. Although. Main contractors are keen on transferring this risk to their subcontractors for delay caused by the subcontractors, transferring this risk to the subcontractors is not always straight forward and is met with considerable resistance from the subcontractors. The extent to which such transfer is possible will depends upon the criticality of the subcontracted work and the bargaining power of the particular subcontractor. Main contractors sometimes run a significant risk of losing out on a major portion of their contract price to LDs for delays by subcontractors, due to the problem of not being able to recover entire LDs from their subcontractors. Various methods for allocating subcontractors’ liability for delays are in practice. This study touches on the subject of delay claims in general and investigates the complexities of apportioning delay damages within subcontracts. It endeavors to find out the different methods that are actually used in practice within subcontracts in the UAE, the frequency of use of each identified method and to what extent is their selection influenced by the attributes of the subcontractors and/or criticality of the subcontracted works. A survey was conducted to discover the methods that are actually used, their frequency, and whether it is possible to relate the different approaches to the attributes of subcontractors. The most commonly used method was for the subcontractors’ liability to be based on a certain proportion of the main contract LDs. Interestingly, this is neither the method stipulated in standard subcontracts, nor is it the one preferred by subcontractors. Moreover, this method puts the main contractors in considerable risks of under-recovery and liable for claims from other subcontractors. This method and indeed all other methods that were discovered, seems to be the result of a compromise between the parties, the selection of which may have a bearing on the parties relative bargaining power.
subcontractors' liability for delays, liquidated damages, law