The penalty is in a narrow sense a flat-rate contract penalty, which is determined among the negotiation partners in the course of contract negotiations.
A delivery date is determined and for every day delay the vendor has to pay a pre-determined amount to the client. The way it is regularly handled is that the customer reduces the final payment. There are still often conflicts, because the vendor does not want to pay and refers to delays the customer is responsible about. The more complex the service, the more likely it is that extensive and debatable negotiations result.
Penalty in reality
The word has become common talk even for two sided additional claims in the course of the project: “They want a penalty from us, because the color does not correspond to RALxxxx.”, “We are supposed to pay a penalty, because…”.
Thereby the penalty turns into a charge for services that are (supposedly) not in accordance with the contract, which can be brought up any time.
Claims are often about mutual requests that in turn are being offset against each other. In the necessary negotiation is often “heavy sound” and there is the risk that the relationship incurs lasting damages.
An argument about a penalty is often about the question: Who is responsible? Are there any extraordinary events – natural disaster, war, …- that is responsible? Is it a “force majeure”?
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