Employers’ Considerations in Construction Projects: The Effect of Delay Notices on Liquidated Damages Claims
Our Associate Habiba Mokhtar analyses delay notices under Bahraini law and their impact on liquidated damages in construction contracts.
Habiba Mokhtar (hmokhtar@raeesandco.com) – Associate
Liquidated damages clauses are a customary feature of construction contracts, allocating to the contractor the financial risk of unjustified delay through the pre-agreement of compensation payable to the employer. Their purpose is to provide certainty and avoid disputes over the quantification of loss. Under Bahraini law, as in many civil law jurisdictions, such clauses remain subject to judicial oversight. The agreed sum must be proportionate to the loss suffered, and courts may reduce the amount where it is excessive. For further insight into liquidated damages and its limitations under Bahraini law, please visit our article titled “Liquidated Damages & Penalty Clauses in the Construction Industry”. Less commonly considered, however, is the procedural requirement to issue a valid notice of delay. In many contracts, compliance with notice provisions may operate as a condition precedent to recovering liquidated damages. Failure to adhere strictly to these requirements can jeopardise the employer’s entitlement, even where delay is undisputed. This article examines the legal effect of delay notices on an employer’s right to liquidated damages and highlights key considerations at both the drafting stage and prior to enforcement.
Purpose and Legal Effect of Notices of Delay
In the absence of a statutory or contractual provision to the contrary, the service of a valid notice of delay operates as a condition precedent to a claim for liquidated damages. Article 220 of the Civil Code provides, “Subject always to any provision of the law or agreement to the contrary, compensation shall not be due unless the debtor has been formally notified.”
The legal significance of this requirement is often underestimated. Formal notice places the defaulting party in delay. Absent such notice, the non-defaulting party may be deemed to have tacitly accepted the delay up to the date of notification and, as a matter of law, presumed not to have suffered compensable harm during that period. This may materially restrict an employer’s entitlement to liquidated damages.
The service of a valid notice of delay gives rise to two principal legal consequences:
- The contractor’s liability for delay crystallises from the date of notification, and liability does not extend to the period preceding formal notice.
- The risk of loss resulting from unjustified delay shifts from the employer to the contractor on the date the notice is served.
The timing and validity of delay notices are therefore not merely procedural formalities but determinative factors in the recovery of liquidated damages.
Judicial application of this principle is reflected in the ruling of the Egyptian Court of Cassation in Challenge No. 268 J.Y. 62, where the Court confirmed that liability for liquidated damages is confined to the period following the service of a valid notice of delay. In dismissing part of the claim, the Court held that, absent a contractual exemption from notification, formal notice was a mandatory precondition to recovery. As notice was only effected on 20 April 1989, compensation was recoverable solely from that date, despite the delay having arisen on 1 February 1983.
The persuasive value of this judgment extends beyond Egypt. The jurisprudence of the Egyptian Court of Cassation continues to influence civil law systems across the Arab region. This is particularly relevant in Bahrain, where the Civil Code (2001), like several GCC codes, draws substantially from the Egyptian Civil Code (1948). In practice, Bahraini courts frequently refer to Egyptian Court of Cassation rulings when interpreting equivalent provisions under Bahraini law.
Practical Considerations
To ensure that the risk of unjustified delay is effectively allocated to the contractor, employers must address notice requirements both at the drafting stage and at the point of enforcement.
At the pre-contractual stage, employers should scrutinise notice provisions with the same care afforded to the quantification of liquidated damages. If the intention is to preserve the right to levy delay damages immediately upon the occurrence of delay, the contract should expressly exclude the requirement for formal notice as a condition precedent to recovery.
However, even where the contract expressly excludes the requirement for notice, employers should proceed with caution. If a delay notice is nonetheless issued, a court may conclude that the employer has elected to proceed on the basis that notice is required, thereby triggering liability only from the date of notification. In such circumstances, the right to claim liquidated damages for the preceding period may be deemed waived. Careful alignment between the contractual framework and subsequent conduct is therefore essential.
At the enforcement stage, the validity of the notice itself is critical. To be effective, the notice must demand performance of the outstanding obligation. Merely asserting an entitlement to liquidated damages for delay, without formally calling upon the contractor to perform, may render the notice defective. This remains a common and often costly misstep.
Ultimately, an employer’s entitlement to liquidated damages cannot be assessed by reference to contractual provisions alone. Compliance with Article 220 of the Civil Code is equally determinative. Failure to satisfy its requirements may materially restrict recoverability.
Concluding Remarks
Liquidated damages provisions offer a degree of commercial certainty, but their effectiveness ultimately depends on procedural compliance. Under Article 220 of the Civil Code, formal notice is not a mere technicality; it is the act that triggers liability and shifts risk. Employers must therefore approach notice requirements with the same rigour applied to the quantification of the liquidated damages amount. Oversight at either the contractual or enforcement stage may materially restrict recoverability, regardless of how clearly the clause is framed. In practice, entitlement to liquidated damages is shaped as much by process as by principle. Careful contractual structuring and disciplined implementation remain central to preserving that entitlement.
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