Let’s face it, the surveying world is full of acronyms, and we absolutely love using them! It’s mostly because a lot of the things in our world have very long, or overly complicated names – sometimes both! So we shorten them down to acronyms so that our conversations don’t last hours. Just one of those acronyms is LAD (Liquidated and Ascertained Damages).
LAD stands for Liquidated and Ascertained Damages, and it’s an item that’s included in most contracts to protect the client if the contractor doesn’t perform their works in a timely manner, or if they fail to meet the agreed deadline for completing the works. The value of the LADs is assessed and agreed before the contract is signed, and is designed to be a genuine pre-estimate of the loss the client will suffer if the contractor fails to complete the works and give the site back to the client in time. Simple really! But…
Because LADs are classed as a pre-estimate of loss, rather than an assessment after the fact, they can vary hugely depending on the type and extent of the works being done. We know, that’s an unhelpful answer, so let us explain.
Often in speculative development projects, a big part of the LADs value is informed by the amount of money being borrowed, or the amount of money that could be put to use elsewhere but is not trapped in the construction costs. The actual or nominal interest rate can be applied to the amount of finance in place if/when the LAD becomes relevant and claimable, and monthly costs would then be used as the basis of the LAD date.
There are other factors that can be considered when calculating the LAD as well, like:
Or really any cost that can be reasonably predicted that might be incurred if the project is delivered late. But they must always be a genuine pre-estimate of loss. They’re not a wild stab in the dark, and they shouldn’t be used as a tool to punish the contractor either.
If a LAD rate is found to be out of proportion to the actual loss suffered by the other party of a contract, then it’s very likely to be challenged. If this happens (and believe us, it does), then the actual level of compensation awarded can be reduced by a judge.
LADs can also be completely left out of a contract, leaving the clause blank. This gives the employer the chance to claim the actual loss amount through the courts if the contractor breaches the terms of the contract. However, one of the big advantages of LADs is that it allows all parties to be aware of the level of risk right from the start. Plus, resolving a claim using LADs is much faster and less costly than going through a legal battle in the courts.
LADs can only be claimed once the contract completion date has passed. For reference, this is the date originally written in the contract for the completion of the works, or an updated date agreed by issuing an extension of time, if relevant. Once this date has passed, the client or employer side of the contract is free to claim for LADs – but only is a specific notice has been issued by the Contract Administrator, called a Notice of Non-Completion. If this notice hasn’t been issued, then you can’t claim LADs until a suitable notice is issued.
Because LADs are considered to cover a period of time that can’t be predicted, they’re expressed as a value per amount of time – normally done in weeks. This means that the final amount can only be confirmed once the works have been finished. At this point, the total amount owed is considered the period between the issue of the non-completion notice and the issue of the practical completion notice – which is issued when all contract works and necessary statutory sign-offs have been done and provided.
You can claim the LAD value in two ways. First, the value can be tracked and tabulated for use at a later date, when the value can be offset against the statement of final account. So essentially, you’re tracking the amount owed and then deducting the total from the amount you have left to pay on the project. Or, if payments for regular work are ongoing, and the value of these payments can be adjusted by issuing payless notices to deduct the value of the LADs from the payment.
There’s nothing at all that says you have to claim the LADs, even if it was agreed in the contract. In fact, many of our surveyors have been involved with projects where clients have declined to claim the damages in favour of protecting their relationship between the parties.
If all of that sounds too complicated, or you would like some advice about the LADs process, then we would love to help. Just get in touch with the team at Harrison Clarke on 02381 55 00 51, and one of our expert surveyors will be delighted to assist you.
For more expert advice on surveying and property matters, check out our range of informative videos on our website or YouTube channel. Harrison Clarke Chartered Surveyors is here to guide you every step of the way!
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