My house is currently under construction and delivery is late. No great surprise there.
I have the following penalty clause written into my building contract.
[i]2. Contractor agrees to complete the work by 07 April 2006 with the exception of any delays beyond our reasonable control.
5. If the works are not completed as mentioned in 2, the contractor will pay a daily fine to the client of 0.1% of the building price.[/i]
Does anyone have experience of penalty clauses and how they work in practice.
Do I as the customer simply work out the total of the daily fine (0.1%) and multiply it by the number of days the project is late and thereafter just pay the reduced amount.......or
does the building contractor insist on FULL payment before the house is released to me as a customer and I then need to consider taking him to court to recover the amount incurred due to the delay.
I suspect that it will probably be the second option. If this is the option available, is it worth the time and effort.
Penalty clauses in building contracts
Remember you're talking about Thailand - are you sure of their definition of 'Beyond our reasonable control'? I'd better their definition is different to yours.
I'd agree with the above wholeheartedly.
The phrase means nothing and with the "our", it certainly puts "them" in the driving seat.
Whatever ever happened to "the reasonable man's" understanding of a situation? I suppose that's down to the courts and probably wouldn't be interpreted the same here as in England?
I really hope the OP is covered, but it does go to show the uncertainty of languages and particularly cultures.
I'd agree with the above wholeheartedly.
The phrase means nothing and with the "our", it certainly puts "them" in the driving seat.
Whatever ever happened to "the reasonable man's" understanding of a situation? I suppose that's down to the courts and probably wouldn't be interpreted the same here as in England?
I really hope the OP is covered, but it does go to show the uncertainty of languages and particularly cultures.
Last edited by Big Boy on Sun May 07, 2006 3:52 pm, edited 1 time in total.
Dan,
I think 0.1% per day is quite a generous daily penalty for them to give you in the contract, some only offer a flat 500 or 1,000 Baht per day!?
But then the wording said:
You are correct that you simply add up the number of days past your completion date and multiply by your 0.1% penalty.
If they accept the damages you should make it part of the final payment (ie: deduct the penalties from your last payment). If there's nothing in your contract to say this can not be done, then that would be normal practice, although, as Big Boy said, this is Thailand ..........
To see if they are going to claim the 'beyond our reasonable control' condition, best speak to them asap and sound them out about it all. They may claim delays from bad weather, delivery delays due to a.n.other supplier, any changes you have made to the spec etc. 'Beyond our reasonable control' is loose and open to interpretation.
I would pursue it to a reasonable level if I were you, but having been forced to take action through the courts in the UK once (where I was awarded damages), my advice would still be IT AIN'T WORTH IT MATE.
Good luck,
Burger
I think 0.1% per day is quite a generous daily penalty for them to give you in the contract, some only offer a flat 500 or 1,000 Baht per day!?
But then the wording said:
Am I being cynical or could you say the 'building price' is totally different to the house selling cost ??the contractor will pay a daily fine to the client of 0.1% of the building price
You are correct that you simply add up the number of days past your completion date and multiply by your 0.1% penalty.
If they accept the damages you should make it part of the final payment (ie: deduct the penalties from your last payment). If there's nothing in your contract to say this can not be done, then that would be normal practice, although, as Big Boy said, this is Thailand ..........
To see if they are going to claim the 'beyond our reasonable control' condition, best speak to them asap and sound them out about it all. They may claim delays from bad weather, delivery delays due to a.n.other supplier, any changes you have made to the spec etc. 'Beyond our reasonable control' is loose and open to interpretation.
I would pursue it to a reasonable level if I were you, but having been forced to take action through the courts in the UK once (where I was awarded damages), my advice would still be IT AIN'T WORTH IT MATE.
Good luck,
Burger
Last edited by Burger on Sun May 07, 2006 3:48 pm, edited 1 time in total.
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lockwood74
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Contracts
I agree with Big Boy, Thailand is not the same as UK. If you were to try to recover costs in a court after you have paid in full, you may well be wasting your time.
I am not aware of your cercumstances fully, but It may be wise to discuss the progress with your builder in the friendliest way possible, and explain your need to get the house finished on time, that is of course if you do need it finished for a specific time.
Try to get them on your side, as I have heard a number of cases where construction workers, have packed up and left, never to be seen again.
Best of luck
John
I am not aware of your cercumstances fully, but It may be wise to discuss the progress with your builder in the friendliest way possible, and explain your need to get the house finished on time, that is of course if you do need it finished for a specific time.
Try to get them on your side, as I have heard a number of cases where construction workers, have packed up and left, never to be seen again.
Best of luck
John
For the record, this was my reply,
I'd agree with the above wholeheartedly.
The phrase means nothing and with the "our", it certainly puts "them" in the driving seat.
Whatever ever happened to "the reasonable man's" understanding of a situation? I suppose that's down to the courts and probably wouldn't be interpreted the same here as in England?
I really hope the OP is covered, but it does go to show the uncertainty of languages and particularly cultures.
I'd agree with the above wholeheartedly.
The phrase means nothing and with the "our", it certainly puts "them" in the driving seat.
Whatever ever happened to "the reasonable man's" understanding of a situation? I suppose that's down to the courts and probably wouldn't be interpreted the same here as in England?
I really hope the OP is covered, but it does go to show the uncertainty of languages and particularly cultures.
Agree with all the above. Another thing to remember and picked up on by Lomuamart, is that to my knowledge at least, only documents in the Thai language have any legal weight in Thailand. Picking hairs over the syntax of the translation is therefore a waste of time.
If the building cost, rather than the selling price to you is indeed what the percentage is based on it would at least give you a good idea of the profit margin being made on the build!
In my own case there was no such penalty clause but I insisted on having the chanote (land deeds) before making the final payments as I didn't want to be held to ransom. My attitude was that if we at least had the land and a half built house we could control what happened next by either delaying payment in the event of non completion or simply finishing the job ourselves using the unspent payments. If you don't have the title deeds before you make the last payment then you have nothing.
It all comes down to the terms of the individual contracts but my experience in Thailand is that you are better off with a face to face, cards on the table meeting with plenty of smiling. As far as the Thai developers are concerned the contracts are only there for the sake of appearance. Remember that everyone has to come out of such a meeting feeling like they have won - the UK construction industry culture of screwing the opposition, even if you know you are in the right, just doesn't work.
If the building cost, rather than the selling price to you is indeed what the percentage is based on it would at least give you a good idea of the profit margin being made on the build!
In my own case there was no such penalty clause but I insisted on having the chanote (land deeds) before making the final payments as I didn't want to be held to ransom. My attitude was that if we at least had the land and a half built house we could control what happened next by either delaying payment in the event of non completion or simply finishing the job ourselves using the unspent payments. If you don't have the title deeds before you make the last payment then you have nothing.
It all comes down to the terms of the individual contracts but my experience in Thailand is that you are better off with a face to face, cards on the table meeting with plenty of smiling. As far as the Thai developers are concerned the contracts are only there for the sake of appearance. Remember that everyone has to come out of such a meeting feeling like they have won - the UK construction industry culture of screwing the opposition, even if you know you are in the right, just doesn't work.
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westmoor04
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Hi I had similar experience, and i suspect same developer, as when i pushed for penalty clause, this was same figure given. The difference in my circumstances i was first house(apart from show house) on first stage of two part developement to be completed, my date was 14th Dec 2005, we were arriving for hol 12th Jan the house was completed but not to the point that we could live in it, e.g water was not there electric was intermitant kitchen was not completed. We mentioned penalty clause casually, as previously mentioned in earlier posts, i suspected it was not worth the paper it was written on, we used it more as a bargaining tool,as far as the developer was concerned house was built, the finihings were part of an extra package. This was all discussed quite lightly and casually. I did find though that the developer was prepared to help us in any way he could, he payed for a guest house for 2 weeks and villa rental for a further 2 weeks, no problems there, also the point of our trip was to get it furnished, curtains fitted,etc. he has helped with storage and such like of these things. Hope this is of some help.
Westmoor 04
Westmoor 04
Thanks to all posters.
Your thoughts mirror my own in regard to the wording of the contract and the definitions applied to it.
On the surface it is simple and straightforward, but if it came to a dispute, it could mean just about anything.
I wasn't aware of the contracts having to be in Thai before they were legal though.
The contract did refer only to the build cost and is a contract specifically for the build. The land purchase was a seperate contract.
I'm coming to Hua Hin on holiday in 2 weeks and was hoping to stay in my new house, however it's not to be and a hotel search is now under way.
I might try and blag a few quid from the builder though (nicely), to cover my additional accomodation, as I last spoke with him in February and he assured me of completion.
He had a big smile on his face at the time and I'm not sure whether he was being friendly or just having a laugh.
In any event, there's nothing I can do about the delay, so there's no point huffing and puffing and getting angry.
I've waited long enough, so another couple of months probably won't make any difference. I might even get an additional unscheduled trip to take possession of the house when it's finally completed.
So, there's a silver lining in every cloud.....and a Chang beer in every pub.
Cheers
Your thoughts mirror my own in regard to the wording of the contract and the definitions applied to it.
On the surface it is simple and straightforward, but if it came to a dispute, it could mean just about anything.
I wasn't aware of the contracts having to be in Thai before they were legal though.
The contract did refer only to the build cost and is a contract specifically for the build. The land purchase was a seperate contract.
I'm coming to Hua Hin on holiday in 2 weeks and was hoping to stay in my new house, however it's not to be and a hotel search is now under way.
I might try and blag a few quid from the builder though (nicely), to cover my additional accomodation, as I last spoke with him in February and he assured me of completion.
He had a big smile on his face at the time and I'm not sure whether he was being friendly or just having a laugh.
In any event, there's nothing I can do about the delay, so there's no point huffing and puffing and getting angry.
I've waited long enough, so another couple of months probably won't make any difference. I might even get an additional unscheduled trip to take possession of the house when it's finally completed.
So, there's a silver lining in every cloud.....and a Chang beer in every pub.
Cheers
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malcolminthemiddle
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The wording within the contract confirms that the Contractor has accepted responsibility to complete the work by April 7th, 2006 and in the event the work is not completed by April 7th, 2006 for reasons beyond the Contractors reasonable control, the Contractor will pay a daily fine of 0.1% of the building price.
The work to be completed by April 7th is the scope of work described elsewhere within the Contract and in addition to the house itself may include amongst others the testing and commissioning of all building services, transfer of all equipment warranties, landscaping, the connection of all utilities and registration of the house with the local authority.
Transfer of the Chanote Title Deed is normally a part of the separate Land Purchase Agreement.
The building price to be paid for the work is defined elsewhere within the Contract and is the price to be paid by the Owner to the Contractor for the work.
Reasons for delay beyond the Contractors control may include weather, changes in law and variations to the original scope instructed by the Owner, it is the Contractors responsibility to give notice and provide details of these delays.
Compensation for incidental costs (hotel accommodation) caused by late completion are not covered by the 0.1% since the 0.1% is defined as a fine. If the 0.1% had been defined liquidated damages, then compensation would have been included.
In this case the fine, unusually, is unlimited.
The final balance payment due following completion of the work to the satisfaction of the Owner should be:
Original Building Price +/-
Value of any Variations instructed by the Owner –
Value of any original work not completed by the Contractor –
Fine for late completion +/-
VAT depending on whether the original building price included VAT-
Total of all previous payments.
Variations and omitted work should be valued in accordance with the Contract.
Contracts written in English are legal in Thailand, however if a contract is written in both English and Thai it is usually the Thai version that takes precedence.
Strongly suggest that as part of the final hand over the Owner and Contractor make a joint inspection to record any outstanding items to be completed before the Owner accepts the work is complete.
The work to be completed by April 7th is the scope of work described elsewhere within the Contract and in addition to the house itself may include amongst others the testing and commissioning of all building services, transfer of all equipment warranties, landscaping, the connection of all utilities and registration of the house with the local authority.
Transfer of the Chanote Title Deed is normally a part of the separate Land Purchase Agreement.
The building price to be paid for the work is defined elsewhere within the Contract and is the price to be paid by the Owner to the Contractor for the work.
Reasons for delay beyond the Contractors control may include weather, changes in law and variations to the original scope instructed by the Owner, it is the Contractors responsibility to give notice and provide details of these delays.
Compensation for incidental costs (hotel accommodation) caused by late completion are not covered by the 0.1% since the 0.1% is defined as a fine. If the 0.1% had been defined liquidated damages, then compensation would have been included.
In this case the fine, unusually, is unlimited.
The final balance payment due following completion of the work to the satisfaction of the Owner should be:
Original Building Price +/-
Value of any Variations instructed by the Owner –
Value of any original work not completed by the Contractor –
Fine for late completion +/-
VAT depending on whether the original building price included VAT-
Total of all previous payments.
Variations and omitted work should be valued in accordance with the Contract.
Contracts written in English are legal in Thailand, however if a contract is written in both English and Thai it is usually the Thai version that takes precedence.
Strongly suggest that as part of the final hand over the Owner and Contractor make a joint inspection to record any outstanding items to be completed before the Owner accepts the work is complete.
So what do we do when the developer finishes the house 25 days late and says that delay was due to:
a) 15 days lost due to those 5 no. terrible storms we had (beyond my reasonable control dear customer)
b) 5 days were due to faulty re-inforcing steels that I had to return and wait for replacements (beyond my reasonable control dear customer)
c) 5 days were due to my labour force striking due to their dissatisfaction at how many public holidays we receive in Thailand
(beyond my reasonable control dear customer)
What do we say ? What can we say ?
Take them to court and look over your shoulder for the next year or so ?
If you want to challenge the wording/phrasing of contract conditions, do it BEFORE you sign it, then you have leverage.
Burger
a) 15 days lost due to those 5 no. terrible storms we had (beyond my reasonable control dear customer)
b) 5 days were due to faulty re-inforcing steels that I had to return and wait for replacements (beyond my reasonable control dear customer)
c) 5 days were due to my labour force striking due to their dissatisfaction at how many public holidays we receive in Thailand
(beyond my reasonable control dear customer)What do we say ? What can we say ?
Take them to court and look over your shoulder for the next year or so ?
If you want to challenge the wording/phrasing of contract conditions, do it BEFORE you sign it, then you have leverage.
Burger
For one-off projects, many of these things could be mitigated if there was a mechanism in the build contract for it to be fairly administered by a third party (architect, project manager - call it whatever) who could assess valuations, variations, delays, liquidated damages etc. with fairness to both parties (from the contractor's point of view inclement weather could be a valid reason for a delay). But if you buy off plan with a developer, the reality of the situation with regards to delay of completion is perhaps little different to what one would expect when buying from a volume house builder here in the UK. 25 day delays can and do happen here with little redress except a letter of apology - especially in a seller's market!
Hello Dandan,
I am a little confused as you referr to the "contractor"
Did you buy the house from a developer, or did you on your own contract with a construction company to build?
I used to work for a large property company in Bangkok and the general opinion was that going through a court in order to recieve funds was a useless venture - the system is simply not effective at all, even if you win you are not likely to see any money for years. Im not 100% whether this is true or not, but our lawyers claimed it was so. You can sue someone with the purpose of giving them headaches, hassle and costs, but not to get money from them
If you hired a construction company to do the job for you, you simply have to make sure you are the one owing them cash (only paying for work already finished and having a warranty bond of about 5% on top of this). Then you claim for the delay days - Allow the construction company to counterclaim (If you have done any variations the company can easily claim many weeks for this, and rightly so), then you settle somewhere in the middle and pay the contractor this. - Basic rule in dealing with construcion companies is that the one with the money owing is right - even when he is wrong. But you depend on your construction company even after the work is done and do not want bad relations
If you buy from a developer: Bring up the total delay days and allow the developer to counter claim - allow some time for this to happen as the developer is likely to take your claim directly to the contractor.
The developer is most likely to have the same guarantees from the contractor (liquidated damages of 0,1% per day) as the developer has given to you. Therefore, remember that in a way the developer is on your side of this discussion as the developer has no economic benefit to gain from the delay and has a lot to loose in terms of customer satisfaction. The developer is likely to be screaming twice as hard at the contractor as you are screaming at the developer right now.
Best way to make a developer speed up is to be a royal pain.. Daily mails, phonecalls etc.. The developer will dislike you but will put more effort into your house than that of the quiet neighbor.
In case of that a real dispute arises with the developer, Threatening to officially discredit the developer by newspaper ads etc also tends to work - a whole lot more than a potential courtcase.
Word of caution.
If you are in Hua Hin and feeling frustrated. Make sure only to vent this on the bosses of the development company, do not walk around the half finished house screaming at the project managers - or even worse the thai construction staff. If the thai construction staff feel uneasy when you are around they will find reasons never to be there when you are around or deliberately make "misstakes" to get back at any inconvenience you caused them.
Good luck
I am a little confused as you referr to the "contractor"
Did you buy the house from a developer, or did you on your own contract with a construction company to build?
I used to work for a large property company in Bangkok and the general opinion was that going through a court in order to recieve funds was a useless venture - the system is simply not effective at all, even if you win you are not likely to see any money for years. Im not 100% whether this is true or not, but our lawyers claimed it was so. You can sue someone with the purpose of giving them headaches, hassle and costs, but not to get money from them
If you hired a construction company to do the job for you, you simply have to make sure you are the one owing them cash (only paying for work already finished and having a warranty bond of about 5% on top of this). Then you claim for the delay days - Allow the construction company to counterclaim (If you have done any variations the company can easily claim many weeks for this, and rightly so), then you settle somewhere in the middle and pay the contractor this. - Basic rule in dealing with construcion companies is that the one with the money owing is right - even when he is wrong. But you depend on your construction company even after the work is done and do not want bad relations
If you buy from a developer: Bring up the total delay days and allow the developer to counter claim - allow some time for this to happen as the developer is likely to take your claim directly to the contractor.
The developer is most likely to have the same guarantees from the contractor (liquidated damages of 0,1% per day) as the developer has given to you. Therefore, remember that in a way the developer is on your side of this discussion as the developer has no economic benefit to gain from the delay and has a lot to loose in terms of customer satisfaction. The developer is likely to be screaming twice as hard at the contractor as you are screaming at the developer right now.
Best way to make a developer speed up is to be a royal pain.. Daily mails, phonecalls etc.. The developer will dislike you but will put more effort into your house than that of the quiet neighbor.
In case of that a real dispute arises with the developer, Threatening to officially discredit the developer by newspaper ads etc also tends to work - a whole lot more than a potential courtcase.
Word of caution.
If you are in Hua Hin and feeling frustrated. Make sure only to vent this on the bosses of the development company, do not walk around the half finished house screaming at the project managers - or even worse the thai construction staff. If the thai construction staff feel uneasy when you are around they will find reasons never to be there when you are around or deliberately make "misstakes" to get back at any inconvenience you caused them.
Good luck