Most of construction and supply contracts contain liquidated damages clause which enable the employer from imposing penalties upon the contractor or the supplier in case of performance delay or failure regardless the actual damages resulted from such failure or delay and their value.

Although that the employers used to apply the liquidated damages once the triggering event occurred without any consideration to the reasons behind the triggering event or even the damages value, however that the Court of Cassation in State of Kuwait issued several judgements defining the nature and the limits of the liquidated damages applicability confirming that the competent court is entitled to reduce the deducted liquidated damages to be equivalent to the actual value of the damages resulted from the performance delay or failure. In other words, the contractor is allowed to claim for the recovery of the deducted liquidated damages if the contractor submitted solid evidence proving that the value of the actual damages is less than the deducted amount as liquidated damages.

in addition to the above and as a confirmation regarding linking the liquidated damages to the actual damages value, the Court of Cassation also stated that “the delay in works execution shall not be considered as a stand-alone proof that the liquidated damages should be applied upon the contractor”. Which means that there are other several elements should be taken into consideration before applying the liquidated damages clause, such elements may include -without limitation- the payment of the due payments to the contractor on the agreed invoices maturity dates and if the delayed payment affected the contractor’s cash flow or if the employer did not issue the required approvals for the project milestones in the agreed contractual durations for these approvals.

Usually, in Kuwaiti judicial system, the calculation of the actual value of the damages occurred due to the contractor’s delay in completing the contractual works may require appointing experts to examine and evaluate the actual value of the damages in order to be compared with the actual deducted liquidated damages.

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An example for Liquidated Damages Clause in Construction Contracts

• -          The Contractor, where it fails to complete the Works or any Portion of the Works within the Completion Period (as may be extended pursuant to the terms of the Contract), shall pay to the Company an amount of Ten Thousand Kuwaiti Dinar as liquidated damages for such default, for each day of the period which shall elapse between the relevant date for completion in accordance with the Contract and the actual date(s) of completion of the Works or any Potion of the Works stated in the Acceptance Certificate, issuance of the said Acceptance Certificate shall not be considered as a waiver by the Company of any liquidate damages accrued.
• -          The Company, without prejudice to any other method of recovery and without the need for judicial proceedings, may deduct the amount of liquidate damages from any money in its hands due or which may become due to the Contractor. No prior notice shall be required for the application of liquidated damages and the liquidated damages shall become due and payable immediately upon occurrence of the delay. The payment or deduction of such damages shall not relieve the Contractor from its obligation to complete the Works or from any of its other obligations and liabilities under the Contractor.