Liquidated Damages

What are liquidated damages?

Liquidated damages (LDs) are a contract clause that sets a predetermined amount the contractor owes for each day or week of delay beyond a agreed completion date. LDs apply when finishing late causes real owner harm that is hard to calculate exactly.

LDs are not a surprise fee. They are negotiated upfront, often on commercial and public projects.

Liquidated damages vs actual damages

Owners prefer LDs for certainty. Contractors should verify LD rates are reasonable and not a disguised penalty where local law restricts penalties.

Common LD triggers

• Failure to reach substantial completion by date
• Missing phased turnover on multi-tenant builds
• Extended mobilization blocking other trades

LDs usually exclude delays caused by owner changes, permitting authority, or force majeure if the contract says so. Read the excused delay list.

LDs and schedule management

Protect yourself with:

• Realistic baseline schedule in the bid
• RFI and change order documentation for owner-caused delay
• Daily logs and weather records
• Notice provisions when milestones slip

Without records, LD letters become expensive quickly.

Negotiating LD clauses

Contractors can push for:

• Cap on total LD exposure
• Mutual LD for owner payment delays where allowed
• Clear definition of substantial completion
• Extensions for permit and inspection delays outside your control

Note

This is general info, not legal advice. Liquidated damages enforceability varies by jurisdiction. Consult a construction attorney before accepting aggressive LD terms.