Investigation on contractual aspects and the calculation of liquidated and ascertained damages included in construction contracts in Sri Lanka

Abstract

Timely completion is crucial in construction projects, yet many encounter disputes regarding delays. The treatment of liquidated and ascertained damages (LAD) and penalty clauses serves as a significant risk mitigation strategy, contingent upon the governing laws of the contract. While numerous efforts have been considered to harmonize the contractual framework of liquidated and ascertained damages, inconsistencies are evident in the principles applied across various jurisdictions when assessing LAD. Although there have been many attempts to standardize the contractual structure of liquidated and ascertained damages, inconsistencies are apparent in the principles applied across different jurisdictions when evaluating LAD. Hence, this research investigates the contractual aspects concerning Liquidated and Ascertained Damages within the framework of construction contracts. The study incorporates a comprehensive literature review on the legal aspects of LAD across various jurisdictions, contractual implications, assessment methods, and associated disputes. Additionally, the study conducts semi-structured interviews with sixteen industry experts well-versed in contract administration and law. Manual content analysis has been used to meet its objectives. The findings illuminate practical applications and challenges concerning LAD provisions, considering factors like contractual interpretation, legal frameworks, and disputes. Ultimately, this study advances understanding of proper practices concerning LADs in construction contracts in Sri Lanka. The contribution of this research lies in enhancing the understanding of the considerations governing the imposing of Liquidated and Ascertained Damages from a legal and Contractual perspective.