(3) In the context of paid sick leave for federal contractors (see subsection 22.21), such restrictions prevent a claimant from attempting to claim an unfounded exorbitant amount from a defendant. For example, a plaintiff may not be able to claim lump sum damages equivalent to a multiple of its gross turnover if the infringement concerns only a certain part of its business. The concept of lump-sum damages is based on compensation for the damage caused to the party and not on a fine imposed on the defendant. (a) The procuring entity shall take into account the possible effects on prices, competition and procurement management before applying a lump-sum compensation clause; Use lump-sum compensation clauses only if the contracting parties use lump sum damages, if the actual damages, although real, are difficult or impossible to prove. (b) Lump sum damages do not constitute a penalty or a negative incentive for performance (see 16.402-2). Lump sum damages are used to compensate the government for probable damages. Therefore, the flat-rate compensation rate must be an appropriate prognosis of fair compensation for damage caused by late delivery or late performance of the respective contract. Use a maximum amount or duration to assess lump sum compensation if these limits reflect the most likely harm to the government. In addition, the contract agent may use more than a flat rate of compensation if he or she expects the likely harm to the government to change during the term of the contract. b) This paragraph does not apply to lump sum damages – Courts generally require the parties concerned to make the most reasonable assessment of the lump-sum indemnification clause at the time of signing the contract. This can give a sense of understanding and assurance of what is at stake when this aspect of the treaty is violated. A lump-sum damages clause can also provide the parties concerned with a basis for negotiations for an amicable settlement. A common example is a design phase of a new product, which may include consulting with external suppliers and consultants in addition to a company`s employees.

The underlying plans or designs of a product may not have a defined market value. This may be the case even if the following product is essential to the progress and growth of a business. These plans can be considered company trade secrets and very sensitive. If the plans were discovered by an unhappy employee or supplier, it could significantly affect the ability to generate revenue from the release of this product. A company should make an estimate in advance of what such losses might cost in order to include it in a lump sum indemnification clause in a contract. In summary, contractors or subcontractors who oppose lump-sum compensation for delays in construction projects face a difficult task if they prove that a lump-sum indemnification clause is an unenforceable penalty. It is almost impossible to prove that the damage caused by the delay was not difficult to determine at the time of the award of the contract. However, if the contractor or subcontractor can prove that the amount of the lump sum damages was an arbitrary amount far exceeding the actual damages, a court may conclude that the lump sum damages constitute an unenforceable penalty. On the other hand, owners and contractors are likely to avoid that lump-sum damages for default clauses are set aside as unenforceable penalties if the amount of the lump-sum damages reflects a sincere attempt to estimate the actual damage and their contract contains provisions that the actual damage is difficult to determine and that the amount of the lump-sum damages is a reasonable estimate of the damage. real. actual damage. This guide describes the main steps you can take to ensure that lump-sum compensation clauses are enforceable.

Comment: These decisions demonstrate the flexibility of GL clauses as a possible remedy in many business contexts. Although the criminal rule remains the greatest risk to the applicability of these clauses, lawyers can be reassured by the persistent reluctance of the courts to intervene in contractual relations between experienced commercial parties, except in cases of absolute necessity. However, the emphasis on „legitimate interest” deserves to be taken into account, and it may be useful to identify it in the contract itself. In Makdessi, supra, the contract expressly acknowledged that the restrictive agreements at issue had been included specifically to protect the extremely valuable goodwill of the business for sale. It should also be noted that courts are increasingly aware of the business context and justification of LD clauses and the context in which they were agreed, and that it may be useful for parties to keep written notes on the context and reasons for choosing the amounts they make. As always, when applying the criminal rule, the court will take into account the content of the clause in question and not its form or the way in which it will be marked by the parties. .