Top 5 tips on liquidated damages

We're sure you've spent many sleepless nights wondering about liquidated damages. Well, now you can banish insomnia for good. We take you through all the things you need to know about liquidated damages provisions in contracts and what to do if you come across one.

1. Liquidated damages are a fixed sum payable to a party to compensate it for a specific breach or failure by another party. While typically found in the mystical realm of construction contracts, LD clauses are starting to appear in all sorts of commercial contracts including manufacturing agreements and those for the provision of goods and services.
2. Liquidated damages are designed to compensate an injured party for a specific breach – not to penalise the defaulting party or deter it from breaching the contract. Liquidated damages need to be a "genuine preestimate of the loss" that is likely to be suffered by a party as a consequence of a breach. If it isn't, then the obligation to pay that sum will be