Delay Penalty In Construction Contracts

• Published date: 28 February 2023
• Subject Matter: Corporate/Commercial Law, Real Estate and Construction, Contracts and Commercial Law, Construction & Planning
• Law Firm: Sariya Al Hadi & Ali Al Rashdi & Co.
• Author: Mr Ali Al Rashdi

The construction contract often includes a clause whereby the contractor is obliged to compensate for the delay in completing the works by a certain amount for each day, each month, or for each period of time in which the implementation is delayed. Such a clause could be determined as a penalty under which the parties agree to compensate for the damages resulting from the delay. Also, the clause could be described as a comminatory clause merely designed to threaten the contractor and discourage him from breaching the performance of his obligation. However, the court will decide whether the agreement was a penalty or a comminatory clause in the light of the parties' intention when they entered the contract.

Conditions for applying the delay penalty in Construction Contracts

In order to apply the penalty, the contractor must complete all the work awarded to him but has delayed handing it over to the employer on time. In other words, the contractor is not obliged to pay delay damages if he did not carry out all or some of the works. In this case, the employer has the right to claim compensation under the general rules for damage arising from a delay in performance.

Proving the causal relationship between delay and damage

In contrast to the delay...