Tanzania: Liquidated Damages In The Tanzanian Construction Industry

Last Updated: 8 July 2019
Article by Peter Kasanda, Amreen Ayub and Jasper Dymoke

As the construction industry continues to develop in Tanzania, the use of international standard contracts has increased. In particular, we have seen the FIDIC (Fédération Internationale Des Ingénieurs-Conseils) standard form contracts used more frequently in this jurisdiction.

It is standard practice for most construction contracts, including FIDIC contracts, to contain a liquidated damages clause. As liquidated damages (LDs) provide for a pre-agreed rate of damages, payable to the employer by the contractor in the event of a contractor's delay in performing the work, the risk of delay for the employer is mitigated.

LDs, as opposed to general damages, do not require the claimant to prove that the losses claimed have actually been suffered. As such, the contract will provide for a genuine and fixed pre-agreed estimate of loss. Often this is calculated based on the amount of loss that will be incurred on a daily basis if the work is not completed on time.

It is important to note that Tanzanian law only provides guidance in relation to LDs for contracts where one party is a governmental body. There is no statutory guidance for contractual LDs where both contracting entities are private parties. In Tanzania, LDs clauses in government contracts are included pursuant to section 77(4) of the Public Procurement Act 2011.

Given the frequency with which construction projects involve public entities in Tanzania, this note will predominantly focus on LDs in the context that a government counterparty exists within the contractual structure.

Are LDs a necessity?

Pursuant to regulation 112 of the Public Procurement Regulations (the Regulations), Tanzanian law prescribes that the employer imposes on the "tenderer" LDs for "undelivered materials or goods, undelivered or delayed services or delayed works". Further, the Regulations imply a cap of LDs in the event that no such cap is pre-agreed in the contract.

Notwithstanding the above, given the nature of construction projects and the tendency for delays to occur, employers should generally take a cautious approach and negotiate the inclusion of a LDs clause, thus decreasing the likelihood of dispute over payments for delayed works. LDs may also be beneficial to contractors as they provide an effective means to cap their liability for delay which can be priced into their bid before entering into a contract.

Of course, if the employer and contractor are private entities, the inclusion and negotiation of LDs provisions is of particular significance, given that there is no underlying statute with maximum rates already provided upon which to rely on. As such, the importance of mitigating the risk of delay through the inclusion of LDs is heightened, particularly due to the often unequal bargaining positions between the parties.

Can the contract stipulate a daily rate and an overall amount of damages?

The contract can stipulate a daily rate of LDs from between 0.10% to 0.15% of the contract value, per day, up to a sum equivalent to the amount of the performance guarantee.

Regulation 112(3) of the Public Procurement Regulations further provides that, the maximum amount of the LDs shall be equal to the amount of the performance bond or guarantee established in the contract.

Can the damages stipulated within the contract exceed those prescribed by the Regulations?

Whilst the Regulations are not strictly authoritative on the amounts of LDs to be agreed, it is strongly advised that the LDs prescribed under the contract remain within the parameters set out by the Regulations. This will mitigate the risk of any successful challenge by the contractor should the LDs be disputed. Indeed, as indicated above, the Regulations prescribe limits on LDs in order to guard against overly punitive and excessive compensation.

Can the amount stipulated in the contract be revised by a Court?

Pursuant to section 74(1) of the Law of Contract Act, a Court will have the discretion to revise the amount stipulated. This is despite the fact that no damage has been suffered. However, the damages awarded by the Court cannot exceed the amount prescribed in the contract. As such, whilst a Court cannot simply reject payment of LDs because no damage has occurred, it is bound by the confines of the contract and the amounts stipulated within it. Nonetheless, employers should be aware because this does mean that courts have the discretion to reduce LDs from the actual amount stipulated in the contract.

Performance LDs

Performance LDs are often included in construction contracts where the works involve a measurable output, for example a power plant. Performance LDs can be included as a means of compensation if a specified task is not done to the standard specified in the contract. Whilst not as common as LDs, which relate to delays, it is worth considering their inclusion into a construction contract, particularly if there are specific output, efficiency and availability requirements. Unlike LDs, no cap is specified for performance LDs under Tanzanian law.

In summary, LDs are fundamental to any well-structured construction contract. Whilst general damages will provide protection for actual loss suffered owing to delay, LDs provide an added layer of protection for the employer for loss that cannot be quantified. By contractually agreeing to a rate of damages prior to the contractor undertaking the works, employers are safeguarded against significant losses, and contractors have an understanding of how much they may owe the employer if they are in breach. LDs also serve the additional purpose of ensuring that the contractor completes the works fully in a timely manner.

Enforceability of LDs

The principles outlined below are applicable in Tanzania given that Tanzania is a common law jurisdiction.

  • Penalty: the amount of LDs should be a genuine pre-estimate of the loss likely to be sustained by the employer. The English courts are beginning to move away from this principle and have recently held that LDs need not solely be a genuine pre-estimate of loss, but can reflect the wider commercial context of a transaction and seek to protect legitimate commercial interests. However, it is crucial to note that if the level of LDs is extravagant, exorbitant or unconscionable, then the courts are unlikely to enforce them.
  • Prevention Principle: if the employer prevents the contractor from completing the works on time then the courts may find that time has become 'at large' – this means the contractual completion date will fall away and the contractor is required to complete the works within a reasonable time. Along with the contractual completion date, the LDs provisions will also fall away.
  • Uncertainty: contractors may also argue that the scope of LDs clause is too uncertain in its meaning or effect to be enforceable, although in practice, courts are generally reluctant to find all or part of a contract void for uncertainty.

Case in point – English Court of Appeal

Triple Point Technology Inc v PTT Public Company Limited

This case examined what happens in respect of an LDs clause if the works are incomplete and the contract is terminated.

The facts:

The Contractor (Triple Point) was late in completing one of the phases of works. Triple Point demanded payment for the incomplete works. The Employer (PTT), holding that payment was subject to the fulfilment of milestones, refused to make payment. Triple Point suspended its works so PTT terminated the contract. PTT claimed LDs.

The decision:

The court followed earlier authorities, confirming that once the contract is terminated, the contractor is not under an obligation to complete the works. Therefore, LDs cannot apply.

This meant that PTT could only seek LDs for work that had already been completed as the contract had already been terminated.

In light of this decision, a belts and braces approach should be taken when drafting LDs clauses in order to ensure that if the party in question wants to guarantee that LDs apply in the event of termination or abandonment, they do not apply only when works are complete. As such, it would be sensible to factor in a number of different completion dates.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions