Liquidated damages clauses in construction contracts: A study of the application preference of the three-prong test by the appellate court system

The purpose of this study was to test each test prong of the three prong test courts utilize to assess the validity of a liquidated damages clause in a construction contract. One hundred seventy-five cases were reviewed by six research investigators. The cases were reviewed to determine whether the intent test, difficulty test, and reasonableness test were applied by the court and if so, whether each test was applied at time of contract, time of trial, or at time undefined. The test results demonstrated that the courts display an application preference for the difficulty test and reasonableness test in that order. Currently, the intent test is not a test measurement employed by the courts in the enforceability question of a liquidated damages clause. The results further indicate that the difficulty test and reasonableness test were applied most often at time of contract.