Cian BrennanFounder, Quantum Contract Solutions · Founder

Liquidated Damages and Rising Interest Rates in Construction

Name: Liquidated Damages and Rising Interest Rates in Construction
Uploaded: 2024-04-27T00:00:02+00:00
Duration: 39 s
Channel: Cian Brennan
Description: In this brief commentary, the speaker outlines three interrelated financial pressures that are tightening cash flow for construction firms and driving an…

27 Apr 2024 · 1 min

Watch on YouTube

0:39

In this brief commentary, the speaker outlines three interrelated financial pressures that are tightening cash flow for construction firms and driving an increase in business failures. First, material shortages and labor constraints cause project delays, triggering liquidated damages that contractors must pay to owners. Second, many projects remain incomplete, leaving contractors unpaid for work performed, further eroding cash reserves. Third, the cost of financing has risen sharply since the pre‑COVID era as interest rates climb, increasing borrowing costs. The combination of these factors is strangling cash flow and leading to more firms exiting the market.

Chapters

If you're late on a project, you have to pay back the owner of the project a certain amount of money to compensate them for you being late. And so what we've seen is 3 different things have happened. Because of materials and because of lack of people, they haven't been able to deliver their projects on time, which means that they got hit with liquidated damages. That's the first thing. The second thing is they haven't been able to complete the work, which means they never got paid for the work, which obviously hits their cash flow very, very hard again. And the last thing is the cost of financing since pre-COVID to now has gone up remarkably. So the interest rates have gone up. All three of those things combined have strangled people's cash flows, and people are going out of business more and more and more.