Back To Basics: How To Use Liquidated Damages Clauses Effectively

Liquidated damages (LDs, or sometimes referred to as "liquidated and ascertained damages" or LADs) are an agreed or pre-determined level of damages, which can be deducted by an innocent party from a defaulting party in the event of certain contractual breaches. Very often, they are deducted in respect of delay, although they can also be deducted when there has been a failure in performance. They are used as an alternative to the general damages that might be recoverable in the event of a contractual breach – the innocent party cannot recover both in respect of the same losses.

In this article in our Back to Basics series, we discuss the topic of liquidated damages and what the parties to a contract need to consider at drafting stage. The series provides practical insights on key construction topics in relation to English law for non-English qualified in-house lawyers, contract managers and construction professionals.