Liquidated damages in construction contracts: How much can delay cost?

Liquidated damages clauses fix the amount that one party must pay another party for breach of contract. In construction contracts, they often fix the amount that a builder or subcontractor must pay their client if their work isn't completed in time.

Liquidated damages clauses can help avoid arguments about loss caused by delay and give certainty to builders, subcontractors and owners. They can also help to motivate contractors to get their building work done in time.

Penalties

The amount specified in a liquidated damages clause must be carefully considered when entering into a construction contract. The amount must be a genuine pre-estimate of the loss that the party will incur from the breach. If the amount is so large that it is out of all proportion with the greatest possible loss likely to result from the breach then it may be considered to be a penalty and therefore unenforceable.