Liquidated damages in construction contracts: Enforceability and common disputes

Project delays are a common challenge in many construction projects across Australia. These delays not only push back the original practical completion date but also lead to disputes over financial repercussions and the legitimacy of the delay itself. For parties involved in a project, it is crucial to understand how liquidated damages clauses operate and the disputes it can trigger.

A liquidated damages clause represents a pre-agreed mechanism by which the contractor compensates the principal for failing to complete the project by the agreed date for practical completion. It offers a predictable way to manage delays without requiring the principal to prove actual damages in court and provides contractors with clear visibility of their potential liability for late completion.