Your career questions answered: from the Project Manager, Kuwait Gas and Oil..

Question: Can you provide some suggestions as to how we could calculate genuine liquidated damages for service contracts? If the supplier doesn't repair a system within the agreed service level agreement, for example, the loss is downtime and this hard to quantify.

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 Answer: LDs clauses define the damages payable for a specified breach. Provided LDs are genuine pre-estimates of loss, they are enforceable. "Penalties" (amounts designed to deter breach , without being based on likely loss) are unenforceable. If the clause is commercially reasonable, the contractor is unlikely to risk the commercial relationship by objecting, even if , strictly legally, the clause may not be enforceable.

A common sense approach for a service contract is to divide up a contract price to give a sum per hour/day for service provision and use that (adjusted to reflect severity) to quantify the LDs for the time there is a lack of service, relating the LDs directly to the contractor's failure to deliver the service. LDs may also take into account consequential costs arising from the breach (such as lost sales) but these must be likely enough that the parties could have contemplated them.

                                                                                                           
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