Government recognises that an entitlement to liquidated damages6 may result in higher bid costs. Therefore, in most circumstances liquidated damages will not be payable for late delivery. However, there are limited circumstances, as discussed below, where government may seek payment of liquidated damages. This will be determined on a value for money basis and consideration will also be given to other remedies available to government under the project agreement to recover costs arising from a private party default (e.g. indemnities, erosion of the operating term and reduction in the service fee for late delivery).7
Accordingly, governments may adopt one of the following approaches to late delivery:
(a) Where there is a fixed concession period, or the operating term is a fixed period from the Date for Completion, erosion of the operating term as a result of late achievement of Completion and, therefore reduction in the service fee, is the preferred incentive for timely delivery. Government will generally not seek to charge liquidated damages for late delivery in addition to this erosion of the operating period. However, this may be necessary in circumstances where government's potential delay costs are greater than the aggregate of the service fee payments it will not incur as a result of the reduction of the operating period.
(b) Where the operating period is fixed from the Date for Completion, but the project agreement provides that both the Date for Completion and the contract term are extendable as a result of a Relief Event (i.e. there is in practice no erosion of the contract term), liquidated damages may be payable for the period of delay to defray government's delay costs.
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6 As distinct from the liquidated damages payable by the construction sub-contractor to the private party for any period of delay.
7 Subject to value for money considerations - see section 11.1.1 of Chapter 11 (Protection against late or insufficient service delivery).