Hello, this is attorney Bae Ki-hyung of Cheongchul Law Firm.

When construction is delayed, contractors often push work through under schedule pressure, and defective construction frequently occurs alongside the delay. In that situation the owner (client) will claim liquidated damages for delay from the contractor for the schedule overrun and, at the same time, claim substantial actual damages (such as the cost of re-execution) caused by the defective work.

Contractors typically respond that "the liquidated damages clause in the contract is an advance estimate of damages for non-performance, so requiring us to pay delay damages and separately compensate for defect losses amounts to double recovery," and a hard-fought legal dispute follows.

Below we explain, by reference to Supreme Court precedent and the relevant statutes, whether an owner may claim actual damages separately from contractually stipulated delay damages where delay in performance and defective construction (incomplete performance) occur together.

Concurrence of delay damages and defect damages – how the Supreme Court separates the heads of loss

[Question] I have incurred liquidated damages calculated under the contract formula because of construction delay, and the owner is now claiming separate damages for defective construction. Since delay damages are an agreed estimate of damages, can I block the additional claim for actual loss?

[Answer] In short, the Supreme Court holds that delay damages and losses caused by defective construction arise, in principle, from different causes, so damages may be claimed separately from the delay damages.

Supreme Court Decision 2009Da41137, 41144 of January 28, 2010 sets out a clear standard on this issue.

Construction contracts (including the General Conditions of the Standard Form Contract for Private Construction Works) generally contain, alongside the delay damages provision addressing schedule overruns, a separate provision on general claims for damages arising from termination or cancellation of the contract. The Supreme Court interpreted such contracts as follows.

1. The delay damages clause has a limited scope of application

The Supreme Court made clear that "the delay damages provision in the General Conditions should be construed as an advance estimate of damages for liability for damage caused by delayed completion where the contractor fails to complete the work within the completion deadline." In other words, delay damages compensate solely for the failure to meet the schedule (delay in performance).

2. Separate claims for defective construction (incomplete performance) are permitted

The Court further held that "damage arising not from delayed completion but from incomplete performance, such as the contractor having performed the work defectively, is not dealt with under the delay damages provision — unless it arose from delayed completion having a proximate causal relationship with the defective work — and the owner may claim compensation separately under the damages provision of the General Conditions."

3. No cap by reference to the delay damages amount

Accordingly, the scope of damages for defective construction is determined under the general principles governing the scope of damages, including Article 393 of the Civil Act, and the amount is not to be treated as capped by, or unable to exceed, the delay damages calculated under the delay damages clause.

Key point: separating and proving the cause of each loss is decisive

Where delay damages and defective construction are combined, it is essential to identify precisely and prove the "cause" of each disputed loss.

From the owner's perspective, where the contract has been terminated due to the contractor's fault and the harm from the defective work itself — such as re-execution costs or increases in projected construction cost — is significant beyond the loss from schedule delay, the owner should actively separate and prove those losses in order to obtain actual damages in addition to the delay damages.

Conversely, the contractor can only avoid unfair additional liability exceeding the delay damages cap by proving that the losses claimed by the owner are not attributable to defective construction but are simply "losses with a proximate causal relationship to the schedule delay."

The concurrence of delay damages and actual losses from incomplete performance sits at the intersection of contract interpretation and proximate causation analysis. It is a highly specialized area in which outcomes can differ markedly from case to case, so specific legal review from an early stage is necessary.

Drawing on a deep understanding of complex schedule-delay issues on construction sites and of the law of non-performance, Cheongchul Law Firm delivers optimal solutions for defending against excessive damages claims and securing proper compensation for loss. If you are facing difficulties involving delay damages and defective construction claims, we invite you to consult the specialists at Cheongchul Law Firm.

-------

Attorney Bae Ki-hyung served at the Defense Installations Agency and in the construction and real estate teams of major law firms, advising on the entire lifecycle of government contracts and construction projects — including large-scale public works, defense facility projects and SOC construction projects — and resolving related litigation. If you need assistance with government construction works, private construction works, public procurement contracts, or state, local and public property matters, please contact him at any time.

* * *

Cheongchul Law Firm is composed exclusively of attorneys from Korea's five largest law firms, the prosecution service and the legal departments of major corporations. Rather than a single attorney, a team of specialists in the fields relevant to each case responds together. Beyond resolving isolated issues, Cheongchul provides comprehensive solutions across the client's business, delivering legal consulting focused on ultimately achieving what the client wants. If you need help reaching your goals, please do not hesitate to contact Cheongchul.