Legal Insights on Energy Projects Management: Challenges of the Implementation of Liquidated Damages Provisions Under Engineering, Procurement, Construction and Commissioning Contracts

Abstract Energy projects are frequently a subject of very detailed specifications and strict deadlines, poor performance or delays can throw the project and its schedules into disarray, inflate budgets, and strain relationships between the Contractor and the project company/owner. Poor performance and delayed performance of works related to the energy project often translates into increased costs due to overtime wages, penalties for missed deadlines, or additional expenses incurred by the project company/owner to rectify off-specs works and to expedite progress of the project. This may result in triggering the implementation of the liquidated damage provisions that are usually stated under the relevant signed EPCC contract/s to put the party who has not breached the EPCC contract into the position he would has been in if the contract had been properly performed. From practical standpoint, the implementation of liquidated damages provisions is a subject of argument and sometimes leads to potential dispute between the relevant parties in the concerned energy project due to lack of clear understanding of the mechanism, functions and the legal nature of these liquidated damage provisions. For instance, the parties of an EPCC contract may apply the liquidated damage clause as a penalty during the contract execution, while the intention at the earliest phases of the project during negotiating the terms and conditions of the contract was to insert the liquidated damage clause to set a pre-estimation for the losses/damages that is likely to be suffered by the affected party due to the breach of the counter party in the contract. Though, it is important to shed the light on the functions and the legal nature of liquidated damages provisions in energy contracts and to set a road map for the efficient use and enforcement thereof.