Liquidated damages are a sum agreed by the parties when the contract is formed, payable by one party to the other as compensation for a specific breach, most commonly late completion of the works.
In UK construction contracts, liquidated damages are usually stated as a rate per week or per day of delay beyond the completion date, as extended by any extension of time. JCT contracts refer to liquidated damages, while under NEC4 the equivalent is delay damages under secondary Option X7. The main advantage is certainty: the client does not need to prove its actual loss, and the contractor knows its exposure. The rate should reflect a reasonable assessment of the client’s likely losses, such as lost rent or extended fees. A sum that is out of all proportion to the client’s legitimate interest in timely completion risks being unenforceable as a penalty.
Related terms: Extension of Time, Delay Damages, Completion Date, Penalty.
