Can the builder deduct liquidated damages from my payment claim at adjudication?
Only if the builder put the liquidated damages in its payment schedule, the subcontract actually gives it that right, and it can show on the papers that you finished late by the number of days it is charging for. Adjudicators decide on documents, the builder carries the burden of proving a deduction, and in every East Coast state the builder is confined to the reasons it gave in the schedule. Most LD deductions fail on dates and notice, not on the clause.
The five things the adjudicator checks, in order
First, is the deduction in the payment schedule at all? In the East Coast states the builder's adjudication response cannot add reasons for withholding payment that were not in the schedule, and a builder that gave no schedule in time is liable for the full claimed amount and shut out of the argument. A line that says 'LDs applied' with no amount, no dates and no clause is a weak schedule, and the adjudicator will read it as such.
Second, does the subcontract give the right? The adjudicator reads the clause and the particulars: the daily or weekly rate, what it is tied to (practical completion, a milestone, a separable portion), and whether there is a cap. An uncapped rate is common in the subcontracts we analyse, and it is the reason a two-week overrun can swallow a whole claim.
Third, the dates. What was the date for completion, did any extension of time move it, and when did you actually finish? A builder's own construction programme that runs past the contract completion date is strong evidence against it. So is a resequencing instruction, a late workfront, or a notice of delay you sent at the time.
Fourth, notice. Many subcontracts make the builder give written notice of an amount in dispute before deducting it, and many make your delay notice a condition precedent to an extension of time. The adjudicator holds both sides to their own clauses. If you never sent a delay notice and the clause makes it a precondition, expect the extension to fail and the argument to move to causation and the cap.
Fifth, the sum itself. Liquidated damages are meant to be a genuine pre-estimate of the builder's loss from your delay. A rate handed down from the head contract on a small package is open to challenge, but adjudicators rarely strike a clause out on that ground alone. The practical wins are on the dates, the notice and the cap.
How subcontractors beat an LD set-off
The winning file is boring: the builder's programme showing your trade finishing after the contract date, the emails or diary entries that show you were waiting on other trades, the notice you sent when it happened, and a clean calculation of the days actually attributable to you. Where the builder deducted first and explained later, say so. Where the deduction exceeds a cap you negotiated, the cap wins.
Where you have none of that, the adjudicator still has to value the work you did. A builder with a thin schedule and a big LD line often ends up with the LDs reduced to the days it can prove, which is usually fewer than it charged.
Know where your contract stands
Adjudicate Pro: what an adjudicator would likely award under your state's Act, and whether to apply.
Assess my payment dispute freeCommon questions
Can the builder raise liquidated damages for the first time at adjudication?
Not in the East Coast states. The adjudication response is confined to the reasons in the payment schedule, and a builder that gave no schedule in time cannot respond at all. If the LDs were not in the schedule, they are not in the adjudication.
Does the adjudicator decide whether the LD clause is a penalty?
An adjudicator can consider it, but the decision is interim and on the papers, so adjudicators are slow to strike a clause the parties signed. Argue the penalty point if the rate is plainly out of proportion to the package, but put your weight on the dates, the notice and the cap.
What if the builder is also passing down the head contract's liquidated damages?
Read the clause. Some subcontracts add an indemnity for the builder's own exposure under the head contract on top of the subcontract rate. An adjudicator will only allow what the clause supports and what the builder proves it is actually liable for, and a builder that has not been charged by its own client has nothing to pass down yet.
Terms in this guide
Keep reading
General information for Australian subcontractors, not legal advice. Statutory deadlines and details vary by state and change over time; verify them before relying on them. Written by Mat Kennedy at The Construction Contracts Co.