Liquidated Damages

General
Liquidated damages are required as a means of recovering, at a minimum, construction engineering costs from a contractor. Contract time is an essential element of the contract, and it is important the work be monitored closely to ensure completion within the time limits specified in the contract. The cost to the LG for the administration of the contract, including engineering, inspection and supervision, increases as the contract time increases. Likewise, the road user costs also increase as the completion date of the contemplated facility is extended. The liquidated damages contract provision provides a mechanism for the LG to recover these costs associated with the contract time overrun. TxDOT is required to have the LG incorporate liquidated damages provisions into its federal-aid contracts as a condition of the project agreement. The procedures used to determine liquidated damages are described in the
LGPM Guide
.
Additional guidance may be obtained from TxDOT's
Accelerated Construction Strategies Guideline
.
Federal Requirements
  1. 23 CFR §635.127
    –
    1. Requires entities to develop liquidated damage rates for a contract time overrun. At a minimum, the rate should include the average daily cost of construction engineering.
    2. Allows other costs to be included in liquidated damage rates.
    3. Allows incentive/disincentive provisions to be included in the contract but must be separate from liquidated damages.
    4. Every two years the change in liquidated damage rates must be approved or justification must be provided after review that the updated rates are not warranted.
State Requirements
  1. Texas Transportation Code §223.012
    – Requires TxDOT to develop a schedule of liquidated damages.
  2. 43 TAC §26.33(g)(1)
    – Requires specifications for projects connecting to a state highway administered by a RMA to conform to TxDOT standard specifications (including Article 8.6).
  3. 43 TAC §27.56(c)(3)(A)
    – Requires specifications for projects administered by a RTA to conform to TxDOT standard specifications (including Article 8.6) as a condition of state fund participation.
Required Practices
In general, the LG must follow TxDOT policy on liquidated damages as described in the required practices and LG responsibilities contained in the
LGPM Guide
.