If you wanted the supplier to be responsible to deliver on time, you should establish a specific schedule or date for the completion of the work or the delivery of the product or service. As part of establishing that you want to avoid the inclusion of any words that would make the on-time delivery less than absolute. For example you want to use a standard of commitment that they “will” or “shall” complete the work by that date. You want to avoid is any commitment that refers to a level of effort they will use such as reasonable, reasonable commercial, or best efforts. That is because of the fact that if they can prove they exercised the specified level of effort, they will not be liable for damages if the delivery is not on time. The second thing you want to avoid is other language that would water the commitment down. For example, it could be language that states the dates are only estimates or it could be an insertion such as “time and dates of performance are not of the essence of the agreement”. Both of those would eliminate your ability to claim damages for failing to meet the specified dates.
Once you have created a firm commitment to deliver, you next need to establish any remedies for late delivery and any damages that may be claimed. Remedies for late delivery should depend upon how much you need the supplier or contractor’s performance. For example, the following are potential remedies:
1. Cancel the order and charge them the excess costs of cover (the excess cost of re-procurement or the price difference between the amount agreed and the amount you needed to pay).
2. Require the supplier to pay for addition costs of premium freight. I once had a supplier want to place a limit on this because another customer was chartering aircraft and having it shipped and expecting the supplier to pay the cost of those charters.
If you accept a remedy you cannot claim damages for late delivery as you agreed to those remedies.
In lieu of remedies, you could consider damages for breach. There are two areas where these damages may be included in an agreement. You could establish a specific “liquidated damages” term that would establish the rate the supplier needs to pay for each agreed time interval they are late such as a cost per day. Alternatively you could also rely upon the specific limitation of liability provision in the agreement. In all jurisdictions that do not allow penalties, the liquidated damages amount needs to be a reasonable estimate of the damages the party would sustain from the delivery or performance being late. In jurisdictions that allow penalties, the liquidated damages amount could include both actual damages and penalties.
When there is a liquidated damages amount for late delivery, that liquidated damages amount also serves to limit the supplier or contractor’s liability to that amount for the breach of the delivery. If there was no liquidated damages provision, the buyer or client would have the ability to pursue all types of damages that they are allowed to claim under the limitation of liability provision. There is a separate post on “Damages” that you should read that identifies the types of damages that may be included or excluded in a limitation of liability section.
As the limitation of liability provision applies to the entire agreement, it’s important to consider the types of damages that are allowed as that could impact your ability to collect under liquidated damages. For example, if your liquidated damages amount included what would be considered to be consequential damages or loss of profits, and the limitation of liability precluded the payment of consequential damages or lost profits, that would limit the types of damages you could collect under the liquidated damages provision. The best way to manage against this would be to specifically carve the liquidated damages provision out of the limitation of liability section. A “carve out” could be something as simple as: “Except for damages under Section ___ Liquidated Damages, in no event will either party be liable for …...”. By doing that the Liquidated Damages section would be excluded from the Limitation of Liability. If there was a monetary liability cap in the limitation of liability section, you would need to establish whether the liquidated damages payments will count against that cap, or whether they will be in addition to that cap. If you want them to be in addition to the cap, once again you would need to carve those payments out of that cap or make it clear that those payments would be in addition to any amounts recoverable under the limitation of liability.
When you draft contracts you need to read it as the whole document to ensure that each of the individual sections are compatible with the other sections and one section doesn’t serve to restrict or limit what you can recover unless that was specifically your intent.
