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The clauses are generally enforceable. However, courts will invalidate any liquidated damages clause that is deemed to be a penalty. Courts consider liquidated damages to be appropriate for remedying delays in the construction industry.

To be enforceable, the owner must establish (a) the actual damages would be difficult to ascertain, (b) the liquidated damages bear a reasonable relationship to the actual damages, and (c) the contract provision evidences that the parties intended to consider and adjust the damages that might occur from delays or other breaches.

Other contract provisions

Many contracts have a dispute resolution procedure that provides for mediation and/or arbitration of disputes. Such an arbitration clause is enforceable and may be used to dismiss or stay a lawsuit filed in court for a claimed breach of contract.

Typically, contractors have a limited time period to bring a claim under the contract. Once the claim is denied, contractors have a limited time period to file a demand for arbitration with the American Arbitration Association. Once the demand is filed, the AAA administers the arbitration.

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This site was last updated on November 02, 2006