SAN FRANCISCO—Construction delays are sometimes unavoidable but disputes over delays can get mired in legal tangles, which may be avoidable. In the second of a two-part exclusive, Cox, Castle & Nicholson LLP partner Robert Campbell discussed some of the areas to sidestep in damage provisions, ways to minimize litigation and arbitration in complex construction delays.

GlobeSt.com: What are some common mistakes to avoid in a liquidated damages provision? How are these provisions enforceable–or not enforceable–by law?

Campbell: In many states, including California, liquidated damages clauses are presumptively valid. In California, the general test for enforcement is whether the amount set as liquidated damages represents the result of a reasonable endeavor by the parties to estimate a fair average compensation for any loss that may be sustained. The failure to satisfy this legal standard may render the provision an unenforceable penalty. Typically, both owners and contractors want liquidated damages provisions in contracts to replace consequential damages. This helps each side define the risk of project delay. However, owners often fail to adequately assess how they will be actually harmed by project delay, which leads them to agree to liquidated damages provisions, which badly undercompensates them for project delay. Such provisions, from both a legal and fairness perspective, should attempt to forecast and monetize the damage an owner is likely to incur.