Note
How LADs Reduce Your Stage Payment
When the payment certificate arrives for a completed billing stage, it sometimes carries an extra line: liquidated damages (LADs) deducted before the net transfer is calculated. The certified value you counted as incoming cash shrinks by a daily rate multiplied by a delay period someone else calculated.
Most subcontracts with a completion date carry the clause. What catches contractors off guard is the timing: a deduction applied midway through the project, before final acceptance, on a project where the delay is still disputed.
What Are Liquidated Damages in a Thai Subcontract?
Liquidated damages are a pre-agreed daily rate that applies when work is delivered after the contractual completion date. Under Thai civil law, a liquidated damages clause is valid as a pre-estimate of loss, and the paying party does not need to prove actual damage to apply it.
The clause typically states three things: a completion date or milestone date, a daily rate (often a fixed sum per calendar day), and a ceiling on the total amount deductible across the whole contract. The daily rate and the ceiling are negotiable at signing. Once the contract is signed, they are fixed.
How Does the Deduction Appear on Your Payment Certificate?
The main contractor deducts the LAD amount from the gross certified value before VAT and withholding tax are calculated. The certificate shows the gross certified value, the LAD deduction as a separate line, and the adjusted certified value. Your tax invoice is raised against the adjusted figure.
Some main contractors apply a cumulative LAD balance across consecutive stages until the ceiling is reached. A deduction on stage four may represent a delay calculated from a milestone in stage two. Reading the certificate means tracing which period the deduction covers, not just noting the amount.
Which Part of the Clause Governs the Deduction?
Two dates define the deduction: the contractual completion date and the date the work was actually accepted. The difference in calendar days is multiplied by the daily rate.
The clause that matters most in a dispute is not the daily rate but how “completion” is defined. Some subcontracts define completion as practical completion of the full scope. Others define milestones separately, with LADs attaching to each one. If the milestone for certain zones was missed but the overall completion was on time, whether LADs apply depends entirely on how that term is written. If the clause is ambiguous, that ambiguity is the start of your written dispute.
How Do You Check Whether the Calculation Is Correct?
Three checks resolve most disputes.
Consider a subcontractor installing mechanical equipment across eight zones, with a completion date at the end of month four. The main contractor’s certificate shows an eleven-day overrun and deducts accordingly. A written instruction in week six changed the equipment specification for zone seven. If no extension was agreed at that point, an extension claim for the time needed to install the revised specification is unresolved, and applying LADs for that period is disputable.
First, confirm the contractual completion date and whether any approved variation extended it. A variation instruction that added scope typically extends the completion date by the time reasonably needed to execute that scope.
Second, count the delay days using the contractual definition of completion. If the work was ready for inspection on day eighty-nine and the main contractor’s team attended on day one hundred, eleven days of that gap belong to the inspection wait, not to the subcontractor’s delay. Site diary entries, a timestamped inspection request, and photographs are the contemporaneous record.
Third, check the arithmetic. Multiply the daily rate by the number of delay days and confirm it matches the deducted amount.
What Documentation Makes a Dispute Stand Up?
A dispute without contemporaneous records rarely succeeds. Four items carry weight.
A site diary signed by the site supervisor on the day the work finished. The entry written that day is stronger evidence than a letter written later.
Correspondence requesting inspection, with timestamps. In Thai subcontracting, this often runs through LINE as well as email. A timestamped LINE message requesting inspection is evidence of the date you considered the work ready.
Written variation instructions that changed scope or programme. The date of the instruction matters, because it establishes when the scope change was ordered.
The cumulative LAD balance across all payment certificates, to confirm whether the contractual ceiling has already been reached.
How Do You Dispute the Deduction in Writing?
A dispute notice does not need legal language. It needs to name the stage where the deduction appears, cite the clause being disputed, state the factual basis (inspection requested on this date, work was ready on this date, scope extended by this instruction), and request a written response within a defined period.
Send the notice before accepting the payment. In most Thai subcontracts, accepting a payment without written protest can be treated as agreement with the certified amount.
What if Both Sides Contributed to the Delay?
Concurrent delay occurs when the main contractor’s actions and the subcontractor’s actions both contribute to the same period of delay. A common situation: a zone where the main contractor’s prior trades had not completed handover by the agreed date, while the subcontractor also needed additional time for fabrication.
Thai civil law does not have a specific statutory provision for concurrent delay. Practice generally follows the principle that a party cannot claim LADs for a period when their own action also prevented completion. If you can show in writing that the main contractor’s handover was late, and that lateness overlapped with the period for which LADs are claimed, the deduction for the overlapping period is disputable. Site correspondence showing when the zone was actually handed over is the key document.
Can the main contractor deduct LADs before the project reaches final completion?
Yes, in most subcontracts. An interim certificate can carry a provisional deduction based on delay accrued to that date, adjusted at final account. If a deduction in an interim certificate looks disproportionate, noting it in your written response to that certificate is cleaner than raising it for the first time at final account.
What if the cumulative LAD total has already reached the ceiling?
Once the ceiling is reached, no further deductions are contractually supported even if further delay occurs. If the cumulative balance across previous certificates already equals the ceiling, any new deduction on a later stage has no contractual basis. Note this in writing when responding to the next certificate.
How do I document that the work was ready before the acceptance date?
Three items in combination carry more weight than any single one: a timestamped message or email requesting inspection, a site diary entry for the same date recording completed work, and photographs with date metadata. When all three records point to the same date, the documentation is difficult to contradict.
If a payment certificate has arrived with a LAD deduction you believe is incorrect, a 45-minute call is a practical starting point. We read the certificate together, trace the clause, and work out what the documentation you have will support.