Liquidated damages are pre-agreed financial penalties outlined in a contract, payable by a contractor to the owner for failing to meet project deadlines or performance requirements.
How Liquidated Damages Work
If a contractor does not complete the project within the agreed timeline, they must pay a predetermined amount per day or week of delay. This ensures that owners are compensated for potential losses due to late completion.
Avoiding Liquidated Damages
- Realistic Scheduling – Account for potential delays in project timelines.
- Proactive Risk Management – Address possible obstacles early.
- Contract Negotiation – Clarify terms before signing to ensure fairness.
Related Terms: Delay Claims, Force Majeure Clause, Performance Bond, Retainage
FAQs
How are liquidated damages calculated?
A: They are typically based on estimated financial losses resulting from delays, such as lost rental income or additional financing costs.
Can liquidated damages be disputed?
A: Yes, if delays are due to unforeseen circumstances or if the penalty amount is deemed unreasonable.