How I Negotiated Liquidated Damages From $15,000 a Day Down to $3,000
Working as a contracts administrator for an electrical subbie, a tender subcontract landed with liquidated damages of $15,000 per day on a $5.5 million package. That's a head-contract rate pasted into a subcontract. I struck it out, wrote in $2,000, made sure there was a 10% cap, and put the justification in the departures schedule. The builder came back at $3,000 a day. One question, closed in one exchange. This is the script.
Transcript
Here's how I got a liquidated damages rate of $15,000 per day to just $3,000 per day. At the time, I was working as a contracts administrator for an electrical subbie. They were pretty big, doing like $30 mil, $40 mil in revenue per year. The project was based in Queensland. Our head office was based in Brisbane too. Project was in Logan, fun fact. It was tender time we were quoting on this subcontract my job was to read through the subcontract flesh out the risk and sort of negotiate and those departures those changes to the contract that we needed and that was the biggest ticket 15 grand per day for lds is absolutely insane considering it was just a 5.5 million dollar project that sort of rate I would deem acceptable for obviously there's lots of moving parts and factors that change what the
rate is that rate for a 5.5k package I would find three grand a lot more reasonable maybe five grand max grand per day man that package better be mate 50 million something like that here's how I got down from 15k down to 3k I simply told the builder because I know and I've seen so many subcontracts I understand you might not have in career once you know where the industry market standard is it is very much easier to have confidence and conviction and say to the builder this LD rate is too high like at that point you don't have to explain it you can just simply say and this is what I I struck out the 15k per day and then I went lower than what I would actually settle for so I went two grand I believe or 2.5k from memory that
they would go for something in the middle and then we'd settle on that anchoring that's called a negotiation just going lower you know what it's like bargaining and negotiating for something you start lower than you're actually willing to accept or higher if you're selling I struck that out rode in two grand per made sure there was a 10 % cap on it as per industry standard if there already I can't quite remember from memory put in my justification slash rationale whatever you call it that's basically the of column where you explain in your departures why you want that change made because if you just strike it out and you don't explain it you won't get the most receptive or accepting response back from your client or builder I explained to them I said LD rate is simply too high it's unreasonable this these are a
few different things you can say I didn't say all of these but these are a few different things I would say these days LD rate is simply too high it is not in line with industry standard is unreasonable for a package of this size it doesn't reflect the risk of this package properly it looks like a rate that would be a rate for your head contract like it genuinely does because their project value is probably 50 million 100 million and I just know that was likely they just what they commonly do is just take the head contract rate put it in the subcontract but the thing is the risk the issue with that is that there are actually 15 or so 15 or 20 subbies under them so they should be dividing that rate by the subbies and it was quite clear that they hadn't
done that because it wasn't realistic to have an LD rate that high. Now I've seen a lot of subbie directors sign off on this. It's crazy and it pains me inside because they don't realize that one question and a reasonable conversation away from getting it down from a value that could lose like your margin in one week you're late versus a value that won't sink your whole project and margin.
It would in maybe three months if you're late. So a very different dynamic of risk when it comes to signing that subcontract if you haven't negotiated first. Saying all that in my justification, they came back and they said, believe they said, yeah, fair, we can agree on 3k per day. I'm like, easy, signed off on it. We had a bunch more other departures discussed, so that was pretty easily closed out.
That was one of maybe 10 or 20 other departures we had, So was an easy one to win. Less chat on it occurred and less back and forth than that because they just knew that I had a point I'm assuming this and they were just happy to close that out and address the other ones. You are very often, once you understand that, and I hope that insight helps regarding what's reasonable and what's not and what you can accept for LDs and what you shouldn't.
Hope that helps you negotiate in the future just to ask the simple question see if you can get your LD rate down because a lot of the time the builder will just make it higher than it necessarily is or needs to be they also know that they put it that high because a they know subbies will typically sign off it anyway like you might have been doing in the past and b if you are to negotiate that's just their highest starting point you're yet to see what their baseline their bottom is so simply ask the question see what it comes down to and then maybe meet somewhere below the middle I hope that helps me a subscribe if you found that valuable and you enjoyed listening to me I will see you in the next video
General information about Australian subcontracts, not legal advice. Get advice on your own contract and facts.