KUMASI TECHNICAL UNIVERSITY

BTECH BUILDING TECHNOLOGY

COURSE: CONTRACT ADMINISTRATION AND

PROFESSIONAL PRACTICE

LECTURE 5 : LAD AND WARRANTIES

Instructor: Professor Collins Ameyaw [Dr.-Ing., MSc, BSc, MGhIS, MGIOC, PM-IET Gh.]
 LIQUIDATED AND ASCERTAINED DAMAGES (LAD)

• Liquidated and ascertained damages (LADs) are a common feature of

construction contracts used to compensate the client/employer for delays in
project completion.

• LADs are pre-agreed upon damages, typically expressed as a daily or weekly

rate, payable by the contractor for each day or week that the project exceeds
the agreed-upon completion date.

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 KEY ELEMENTS OF LADS

The purpose of LADs is to provide the client with a predetermined remedy for delays, avoiding the
need to prove actual loss or damages resulting from the delay.
• Pre-Agreed Amount: LADs are a fixed amount agreed upon by the parties during contract
negotiation, typically based on an estimate of the client's potential losses due to delayed
completion
• Calculation Method: LADs are often calculated on a daily or weekly basis, using a predetermined
rate specified in the contract
• Enforceability: For LADs to be enforceable, they must represent a genuine pre-estimate of the
client's likely losses rather than a penalty intended to punish the contractor.
• Notice Requirements: Contracts typically require the client to provide notice to the contractor of
any delay events triggering the application of LADs, allowing the contractor an opportunity to
mitigate or contest the delay

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 PURPOSE AND BENEFITS OF LADS

• Certainty: LADs provide both parties with certainty regarding the consequences
of delays, facilitating better project planning and risk management.
• Incentive for Timely Completion: LADs create a financial incentive for the
contractor to complete the project on time or ahead of schedule to avoid
incurring additional costs.
• Compensation for Client: LADs compensate the client for the financial impact of
delayed completion, helping to offset additional expenses or lost revenue resulting
from the delay.
• Avoidance of Disputes: By pre-agreeing on LADs, parties can avoid protracted
disputes over delay-related damages, streamlining the resolution process and
reducing legal costs.
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 CHALLENGES AND CONSIDERATIONS

• Accuracy of Estimate: Ensuring that the agreed-upon LADs accurately reflect the client's
potential losses can be challenging, as it requires a reliable estimate of the financial
impact of delayed completion.
• Enforceability Issues: LADs may be challenged as penalties if they are deemed to be
excessive or disproportionate to the client's actual losses, potentially leading to disputes
and litigation.

• Mitigation Obligations: Contractors have a duty to mitigate delays and minimize LADs by
taking reasonable steps to accelerate work or mitigate the impact of delay events.

• Unforeseen Circumstances: LADs may not apply in cases of force majeure or other
events beyond the contractor's control, highlighting the importance of clearly defining
the circumstances triggering the application of LADs in the contract.
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 WA RRA NTIE S A ND DE F E CTS LIA B ILITY P E RIOD IN
CONS TRU CTION CONTRACTS

Definition:

Warranties are contractual assurances provided by the contractor to the client

regarding the quality, fitness for purpose, and performance of the completed work.

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 TYPES OF WARRANTIES

• Express Warranties: Explicit promises made by the contractor regarding specific

aspects of the work, often documented in the contract or project specifications.

• Implied Warranties: Implicit assurances of quality and fitness for purpose implied
by law, even if not explicitly stated in the contract. Examples include the warranty
of workmanlike construction and the warranty of fitness for a particular purpose.

vDuration and Coverage: Warranties typically have a defined duration and may
cover various aspects of the project, such as materials, workmanship, structural
integrity, and system performance.

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 DEFECTS LIABILITY PERIOD (DLP):

Definition: The defects liability period (also known as the warranty period or rectification period) is the period
after project completion during which the contractor is responsible for rectifying defects and addressing
warranty claims.

• Duration: The duration of the defects liability period is typically specified in the contract and may vary
depending on the type of project and the nature of the work. Common durations range from six months to
two years after substantial completion.
• Contractual Obligations: During the defects liability period, the contractor is typically obligated to promptly
investigate and rectify any defects or deficiencies identified by the client or discovered during routine
inspections.

• Client's Rights: The client has the right to notify the contractor of any defects or warranty claims within the
defects liability period and to require the contractor to rectify the issues at no additional cost.
• Contractual Remedies: If the contractor fails to rectify defects within the defects liability period, the client
may be entitled to pursue contractual remedies such as withholding payments, engaging alternative
contractors to perform the necessary work, or seeking damages for breach of contract

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 MANAGEMENT OF WARRANTIES AND DLP

• Documentation: Maintain comprehensive documentation of warranties,

contractual obligations, and defect notifications to facilitate effective management
and resolution of warranty claims.

• Communication: Foster open communication between the parties regarding

warranty issues, defect identification, and rectification efforts to ensure timely
resolution and minimize disputes.

• Inspections and Monitoring: Conduct regular inspections and monitoring during

the defects liability period to identify any defects or performance issues promptly
and facilitate their timely resolution.
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 MANAGEMENT OF WARRANTIES AND DLP

• Contract Administration: Ensure proper contract administration and project

management practices are in place to track warranty obligations, monitor
progress, and enforce contractual remedies if necessary.

• Continuous Improvement: Use lessons learned from warranty claims and defect
resolution efforts to inform future project planning, design, construction, and
contract management practices.

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 The End

For any queries, please contact

collins.ameyaw@kstu.edu.gh
ameyaw256@gmail.com
+233 (0) 244 765 455
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