MF/1 on Liquidated Damages

MF/1 is an odd contract, especially concerning liquidated damages (“LDs”). In contrast to most other construction industry-standard forms, LDs are expressed as a percentage of the contract value rather than a fixed amount per day or per week. This would probably be accepted if MF/1 was referring to a percentage of the entire contract value because then the LDs would be easy(ish) to calculate. But MF/1 expresses LDs as a percentage of “the Contract Value of such part of the Works as cannot in consequence of the said failure [to complete the Works on time] be put to the use intended”. The whole point of LDs is they are an amount payable or deductible for delays without having to do any potentially tricky calculations or without having a protracted debate over precise amounts. So expressing LDs in this way throws up a number of questions. How easy is it to put a contract value on the part of the works that cannot be put to its intended use? Can that part of the works be easily identified if it is not a defined section with its own specific rate of LDs? Here the MF/1 is clearly referring to “parts” of the works not to “sections”, but case law going as far back as 1968 suggests that the courts are unwilling to apply LDs to parts of the works that aren’t specified as sections. Simple-minded lawyers love certainty. None of this is very certain. The better way is to jettison the use of percentages and parts of the works and agree an amount of LDs in the time-honoured fashion to be applied to sections if relevant to the entire works - £1,000 per week or whatever amount is agreed between the two parties as a genuine pre-estimate of the Purchaser’s losses.

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