Construction Financial Glossary

Liquidated Damages Definition

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

    1. Realistic Scheduling – Account for potential delays in project timelines.
    2. Proactive Risk Management – Address possible obstacles early.
    3. 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.

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