1.16 Under the fixed price design and build contract, JLC Ltd could not pass on to Laser increases in the cost of constructing the facilities, including costs attributable to rectifying elements of the design that did not meet specified performance requirements. JLC Ltd was also liable to compensate Laser for construction delays through the payment of liquidated damages.4 However, JLC Ltd capped its liabilities to Laser at £31 million, which included payment of up to £17 million in liquidated damages. To give the protection more force, Laser secured a covering guarantee from John Laing plc, JLC Ltd's parent company. These provisions initially protected Laser as construction costs rose and delays increased.
1.17 Under the contract, the main source of Laser's income was the Department's payment of the unitary charge (Paragraph 1.6). The Department had agreed to pay just under one-sixteenth of the unitary charge for each completed module,5 from the date of the Independent Certifier's completion certificate for the relevant phase. The delays detailed in Figure 5 therefore meant that Laser suffered a loss of income. Through to the end of October 2001, Laser lost about £11 million of revenue, but recovered liquidated damages of £10 million from JLC Ltd.
__________________________________________________________________________________________
4 Liquidated damages are included in contracts to allow one party either to deduct from payments due to the other party, or to receive a payment from that other party, an amount that represents a genuine pre-contract estimate of the loss that the first party expects it will suffer as a consequence of a specified breach of the contract by the second party.
5 Five per cent of the unitary charge was dependent on completion of Construction Phase 14, car parks and the gas bottle store.