How to price delay cost from the liquidated damages daily rate and your own field overhead

A project manager who sees the completion date slipping on the schedule update has to put a dollar figure on the slip. The contract supplies part of that figure as a liquidated damages rate, a fixed amount per day that the owner deducts from payment for each day the work runs past the contract time. The contractor’s own cost of staying on site longer is the other part, and it never appears in the contract.

This post covers how public owners set the rate under federal rules, then prices a late job with example figures and tests a plan to recover the schedule.

How owners set the rate

On federal construction, the clause is FAR 52.211-12. It says the contractor pays the amount the contracting officer inserts “for each calendar day of delay until the work is completed or accepted.” If the government terminates the contractor’s right to proceed, the clause says the damages keep accruing until the work is done, on top of the excess cost of finishing the job.

FAR 11.501 says liquidated damages are not punitive. They compensate the government for probable damages, so the rate must be a reasonable forecast of the harm from late performance on that contract. The same section says to use them only when timely performance matters enough that the government expects to suffer damage and that damage would be hard to estimate or prove.

FAR 11.502 says what goes into the number. A construction rate should include the government’s estimated daily cost of inspection and superintendence, plus other expected costs of late completion such as renting substitute property or paying extra allowances for living quarters. When a contract has separate completion dates for stages of the work, FAR 11.503 calls for a separate rate for each stage.

Highway work funded by FHWA follows 23 CFR 635.127. Each state DOT must set its own rates, either per project or as a table by project cost and type. At a minimum the rates cover the estimated average daily construction engineering cost for that type of work. With FHWA concurrence a state can add other delay costs, and the regulation names road user delay costs, detours kept in place longer and winter shutdowns among them. The state must review its rates at least every two years, and any incentive or disincentive for early completion has to be shown separately from liquidated damages.

Calendar days and working days

The federal clause counts calendar days, so a Saturday and a Sunday past the completion date each carry the full rate.

Iowa DOT’s standard specifications show the other common form. Section 1108.08 assesses the rate per calendar day on completion date contracts and per working day on working day contracts. When several portions of an Iowa job each carry their own working days and rate, the daily charge is the total of the rates for every portion still open. Iowa also withholds final payment until the parties agree on the amount of liquidated damages.

Which days get excused

The rate applies only to days the contractor is responsible for. FAR 52.249-10 says the government cannot charge damages under that clause for delay from unforeseeable causes beyond the contractor’s control and without its fault or negligence. Its examples include fires, floods, strikes, freight embargoes, unusually severe weather, acts of the government and delays of subcontractors or suppliers that meet the same test.

The clause has a notice requirement. The contractor must notify the contracting officer in writing of the causes within 10 days from the beginning of the delay, unless the contracting officer extends that period. The contracting officer then finds the facts and extends the time when they warrant it. The clause addresses time, so the extra field cost for an excused day is a separate question under the rest of the contract.

A worked example

The figures below are an example. A general contractor is building an $18 million federal office building with a liquidated damages rate of $2,000 per calendar day. The latest schedule update forecasts completion 20 calendar days late.

The first step is the contractor’s own daily cost of staying on site. Take the time-related lines from the general conditions estimate, the ones that run by the week, and convert them to a calendar day by dividing by seven.

The job costs the contractor $9,800 a week, or $1,400 per calendar day, before any work gets installed. On a working day contract, divide by the number of working days in the week instead.

Next, sort the 20 days. The project engineer logged eight days of unusually severe weather and sent written notice within 10 days of each event, so assume the contracting officer extends the time by eight days. Twelve days remain at the liquidated damages rate. The field cost runs for all 20.

The late finish costs $52,000. For each of the 12 unexcused days, the contractor loses $2,000 in liquidated damages and $1,400 in field cost, $3,400 in all.

That $3,400 is the most it makes sense to spend to recover one of those days. Say the schedule shows that nine Saturday shifts for a 20-person crew would pull the finish back 12 days. In this example each worker earns $40 an hour and $60 for Saturday hours after a 40-hour week, a premium of $20 an hour. The overtime premium post covers how that premium is calculated.

Count only the premium as new cost. The crew would work those hours at straight time later anyway, because the installed quantities stay the same. At $20 an hour, nine shifts add $28,800, or $2,400 per day recovered, which is less than the $3,400 that finishing late costs. A comparison that charges the full $60 Saturday wage gets $86,400 and rejects the plan. Salaried supervision adds no wage cost in this example. The labor taxes and insurance on the premium hours would raise the $28,800, and the labor burden post shows how to add them.

How to start on your jobs

Pull the contract for every job with less than 60 days of total float on its last update. Write down the liquidated damages rate, whether it counts calendar days or working days, and the notice period for delays. The total float post shows how to track that float from one update to the next.

Then compute the time-related field cost per day for one of those jobs from its general conditions budget and add it to the rate. Report the combined figure with each monthly schedule update, next to the days of float remaining. When a delay is excusable, log the event and the date of written notice on the day it happens, since the federal default clause gives 10 days from the start of the delay. Where an owner directs work that adds time, the change order rate post shows how to code the cause.