Commercial Construction & Contracting Resources

Civil Construction Costs: What Do I Pay If the Job Isn’t Done on Time?

Posted by Eric Park on June 13, 2018

As a civil contractor, it is imperative to complete any retail, commercial, or public project on time as agreed in the contract between you and the owner. Failure to do so often results in severe repercussions – with a huge number of dollars involved in civil construction costs coverage.

If a building’s owner or roadway user cannot get access to their new space as planned, they are likely to incur rent, revenue, tariff, and any other type of income losses that could prove costly to their operations.

So, what civil construction costs will you incur when you delay a project?

Take the example of a contractor constructing a WalMart store where owners plan on occupying the building in 12 months or less. If a contractor takes an extra one month on the project, they cause the retail chain to lose a month’s worth of revenue.

Also, consider a contractor that delays the completion of a rental property with two months. The owners lose a whole two month’s rent income.

Penalty or Liquidated Damages

When signing most contracts, there is a provision where both parties agree that instead of the contractor having to pay out-of-pocket costs for their delays, they will pay a set daily rate referred to as “liquidated damages.”

The provision provides that if the contractor fails to complete the project on time, a certain percentage of the total contract value will be subtracted from the bills submitted to the project owner. That could even be 8% plus of the total contract value. As such, you are going to be starved on cash flow, and you won’t be able to pay your subcontractors because your bills are on hold with the client.

However, any amount held due to liquidated damages is released as soon as you catch up with the work progress.

Some contracts have a penalty clause, which is dangerous because penalty monies are not refunded to the contractor. So, you have to finish the project on time!

What if there was no contract?

If there was no contract, “common law” generally applies, and a client can be able to recover any “foreseeable expenses and lost profits” because of not having the space in time. Some of the damages they may have include:

  • The hold-over rent at the former location
  • Short-term rent
  • Storage charges for furnishings
  • Cancellation charges or non-refundable expenses related to the move
  • Expenses for an extra architect, engineer, or owner’s representative

Bank Charges and Interests

Before commencing work on a project, you are required to submit documents such as performance bank guarantee, mobilization advance bank guarantee, and contractor’s insurance. These documents are typically valid until project completion. If you delay completion, you will have to pay a lot of bank charges and interest to be given extensions for the document's validity.

Costs Related to Manpower and Machinery

The longer you take on the project, the higher your labor and machine operation costs will be, especially if the equipment is on rent. Plus, envision all the additional worker salaries, overheads, overtime, bonuses, accommodation, and other miscellaneous expenses that you will incur.

Calculate the amount of expected civil construction costs that you are likely to incur in case of a delayed completion date keenly. It’s good to be sure you can handle the extra costs if it comes to it. Don’t just assume that all will be fine!

 

Most importantly, before the job begins choose a company that you trust to complete it on time. 

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Topics: civil construction, Ohio construction

Written by Eric Park