Penalty imposition – a real life experience in Qatar

Chandana Jayalath believes that time extension provisions are not for the benefit of the contractor and liquidated damages for the employer.
Penalty imposition – a real life experience in Qatar
By Dr Chandana Jayalath
Sat 12 Sep 2009 04:00 AM

Penalty and Liquidated Damages (LD) has no difference in Qatar. Everyone talks about penalty without fear of being contested in court. A penalty is imposed as stipulated in the contract per day, subject to a ceiling limit, usually 10% of the contract sum, or adjusted contract sum, as the case may be. Although the contractor’s exposure to a penalty starts only when he fails to achieve scheduled completion, there are some notable exceptions.

Levying a penalty starts according to a schedule of eventaualities already qualified in the contract. These may be, for instance, on a road project where the contractor is delayed in commencing designated trench work or even a section of asphalt work. There are cases where a penalty is applicable due to a delay in either commencement or in completion of almost all individual activities shown in the bar schedule. A delay, due to submission of a traffic management plan would even be a case for penalty in addition to usual delay in completion of the entire work. Sometimes the engineer has been given discretion to consider a further penalty if he feels its is required. However, this discretion has no legal effect and is called a ‘dummy’ clause that is non-enforceable.

Contracts ridden with penalty clauses keep the contractor from managing the project. This is simply because of the wrong belief that extension of time (EOT) provisions are for the benefit of the contractor and LD for the employer. However, a closer look at these provisions, along with the case history, suggests that they promote the reverse of true intensions. The primary idea of including an EOT provision in a contract is to preserve the contractor’s obligation to complete work within a specified time. The fact that the contractor is gaining relief from LD is a secondary outcome.

If such provisions are not in place, the contractor would be able to claim time at large and the contractor’s obligation would be to complete within a reasonable time. Courts will never uphold LD when the client has contributed to delays and restricted the contractor to complete on time. Such a penalty arrangement definitely upsets the contractor’s technical movements freely within the project and tilts the even risk in the contract.

While liquidated damages are early calculations of expected loss under the contract, penal damages strictly go further and seek to penalise a party in some way beyond the loss suffered. Even if two parties, genuinely and without coercion, wish to consent to a contract which includes a penal clause, they are unable to. As such, the imposition of a penalty on each activity of the programme is imprudent if the true intension is to persuade timely completion. If the intention is to counter slow progress, then there is a separate provision in the contract where the engineer calls for a recovery action plan that is technically feasible.

Dr Chandana Jayalath is a Member of the Royal Institution of Chartered Surveyors and a senior contracts specialist for the Public Works Authority (PWA) in Qatar. His latest industrial exposure has been sidelined in the settlement of various commercial and contractual issues, claims and disputes arising in the infrastructure projects spearheaded by the PWA.

The opinions expressed in this column are of the author and not of the publisher.

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