When using Liquidated Damages clause in construction projects, is it allowable to withhold payments from the final invoice amount. Or how would you go about actaully implementing the clause, I am seeing difficulty sending the contractor a bill and having them pay it.

Additionally would it be an appropriate tool to leverage if we are setting deadlines to get material submittals in and the contractors are constantly late, delaying the overall schedule?

 

I guess I am new to using liquidated damages and any advice would be greatly appreciated. 

See FAR Subpart 32.6, Contract Debts. And see if your office or your legal office can get you a copy of Briefing Paper 19-9, Understanding Uses of and Limitations on Liquidated Damages for Delays in Federal Government Contracts, by Brian A. Darst (August 2019).

Be careful about withholding payments. Do so only based on legal advice.

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I guess I am new to using liquidated damages and any advice would be greatly appreciated.

You don't know whether you are new? You have to guess? 🤔

Have you done a Google search for "liquidated damages in government contracts"? 

Vern has pointed to valuable references.

General thoughts you need to consider as you do the deep dive.

As LDs are a contract term I would hope you and the contractor have discussed the possible LDs and you have proof of the fact that LDs are applicable.   By experience that proof is that you are absolute that the delay in completion was 100% not your fault.

Applying LDs to delay in submittals is something I have never seen done.  It would seem contract specifics would apply.  I just wonder why LDs and not application of other clauses of the contract for failure to meet its terms.  I say this as LDs are not a "penalty" for non-performance but rather "damages" for not completing on time.  

No intent to cause confusion as the GAO protest I got this from and the decision it references will not apply to your situation but the may help you in understanding what LDs are.

"Liquidated damages are fixed amounts set forth in a contract at the time it is executed that one party to the contract can recover from another upon proof of violation of the contract terms, without the need for proof of actual damages sustained. Wheeler Bros., Inc., B-223263.2, Nov. 18, 1986, 86-2 CPD para. 575 at 6. Under Federal Acquisition Regulation (FAR) sect. 11.501(a), liquidated damages provisions are authorized where timely performance is so important that the government reasonably expects to suffer damages if there is a delay, and the extent of such damages is difficult to ascertain."

 

 

 

 

Won’t get into all the details but you can’t withhold liquidated damages from progress payments until the contractor exceeds the contract completion date.

Retainage is another story but if you don’t know anything about LD’s , you may not be familiar with retainage and some other aspects of progress payment estimates.

Don’t know what agency standard operating procedures you have. 

Sorry I reread the OP this morning. Yes, you deduct the LD’s from the final payment. You don’t bill the contractor for them.

We wouldn’t generally make the final payment without a release of claims, unless there had already been a disagreement about the issue or amount of LD’s and it had been finalized or adjudicated.

“52.232-5…

“(h) Final payment. The Government shall pay the amount due the Contractor under this contract after - 

(1) Completion and acceptance of all work;

(2) Presentation of a properly executed voucher; and

(3) Presentation of release of all claims against the Government arising by virtue of this contract, other than claims, in stated amounts, that the Contractor has specifically excepted from the operation of the release. A release may also be required of the assignee if the Contractor's claim to amounts payable under this contract has been assigned under the Assignment of Claims Act of 1940 (31 U.S.C. 3727 and 41 U.S.C. 6305).”

 

On 3/30/2023 at 12:45 PM, Priest said:

Additionally would it be an appropriate tool to leverage if we are setting deadlines to get material submittals in and the contractors are constantly late, delaying the overall schedule?

 

“52.232-5

“…(e) Retainage. If the Contracting Officer finds that satisfactory progress was achieved during any period for which a progress payment is to be  made, the Contracting Officer shall authorize payment to be  made in full. However, if satisfactory progress has not been  made, the Contracting Officer may retain a maximum of 10 percent of the amount of the  payment until satisfactory progress is achieved. When the  work is substantially complete, the Contracting Officer may retain from previously withheld funds and future progress  payments that amount the Contracting Officer considers adequate for protection of the Government and shall release to the Contractor all the remaining withheld funds. Also, on completion and acceptance of each separate building, public  work, or other division of the contract, for which the price is  statedseparately in the contract,  payment shall be  made for the completed  work without retention of a percentage.”

If the contractor falls behind the critical path on the approved schedule (for reasons not caused by the government or other excusable delays), you can withhold retainage from the next progress payment. If the contractor makes up lost performance time, you should release that retainage. 

A reminder to check your agency and organization FAR supplements and SOP’s, if any.