What are New York construction liquidating agreements and how do they work?

In the New York construction industry, a liquidating agreement is one between a contractor and subcontractor where the subcontractor releases the contractor from liability in exchange for the contractor going after the owner for the subcontractor’s claims.

Liquidating agreements are also called pass-through agreements. They’re agreements between the contractor and subcontractor to liquidate any claims or disputes between each other.

One party may be entitled to liquidated damages as a result of certain types of breaches of contract. The most common breach of contract that results in a specified liquidated damages is failure to complete the agreed upon work on time.

The purpose of these clauses in the contracts that allow liquidated damages are two-fold. First, it tells both parties up front what the expectations are in the event that the contract is breached. Second it quantifies something that’s often difficult to quantify, which is damages due to late completion of work.

These clauses for liquidating damage save parties time and money. It can be very costly to fight over these disputes through litigation. Instead, it’s more cost-effective to hire attorneys early on to draft strong construction contracts.

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