LIQUIDATED DAMAGES IN A CONSTRUCTION CONTRACT

“Liquidated damages are the amount of money that both parties in a contract agree upon if a breach of
contract occurs or legal action arises as a result of the contract breach. In a construction contract, it is the
mechanism through which one party can claim monetary compensation for loss or damage that occurs as a result
of the other party’s failure to deliver the works, goods or services under the contract on time”

Liquidated damages, where the contractor refuses or fails to satisfactorily complete the work
within the specified contract time, plus any time extension duly granted and is hereby in default under
the contract, the contractor shall pay the owner for liquidated damages, and not by way of penalty, an
amount equal to one tenth of one percent or of any amount stipulated in the contract agreement,
minus the value of the completed portions of the contract certified by the Architect/Project Manager
concerned as usable as of the expiration of the contract time.

Termination of Contract, Extinction of contract by reason of resolution or rescission under Articles

1191, 1380, 1381 of the Civil Code, Section 68 of the IRR118 of R.A. 9184 and other applicable laws arising
from the default of the contractor.

IRR-A Section 68, Annex “E” of R.A. 9184 states that:

All contracts executed in accordance with the Act and this IRR shall contain a provision on liquidated
damages which shall be payable by the contractor in case of breach thereof. For the procurement of
Goods, Infrastructure Projects and Consulting Services, the amount of the liquidated damages shall be at
least equal to one-tenth of one percent (0.001) of the cost of the unperformed portion for every day of
delay. Once the cumulative amount of liquidated damages reaches ten percent (10%) of the amount of
the contract, the Procuring Entity may rescind or terminate the contract, without prejudice to other
courses of action and remedies available under the circumstances.

Article 2 of the Building Contract Format states that:

In the event that the construction is not completed within the aforesaid period of time, the
OWNER is entitled and shall have the right to deduct from any sum to become due the contractor the
sum of EIGHT HUNDRED FIFTY PESOS (PHP 850.00) or ten percent (10%) of one percent (1%) of the
contract price for every day of delay as LIOUIDATED DAMAGES, and not by way of penalty.

LIQUIDATED DAMAGED FORMULA:

LIQUIDATED DAMAGES = PHP 850.0 = # of delayed days (Contract Price x 0.001%)