Liquidated Damages In Construction Contracts: What Are The Snags?

• Published date: 30 July 2023
• Law Firm: Herrington Carmichael
• Author: Mr Cesare McArdle and Katrina Banks

Negotiation around liquidated damages can be a crunch point for parties, as liquidated damages claims can represent a significant risk for contractors if there is a delay, while employers want to have the best remedy possible.

In this article we discuss the top considerations around liquidated damages clauses.

What are liquidated damages in construction contracts?

Liquidated damages are damages payable by a breaching party for a breach, such as failing to complete works within a specified time, and they are for a quantified amount or formula which is pre-determined by the parties during the negotiation of the construction contract. They are different to general damages, which aim to put the innocent party in the position they would have been in had the breach not happened. When claiming general damages, the innocent party has to demonstrate the loss it has suffered, whereas, this is not generally the case for liquidated damages, which usually become automatically payable on the occurrence of the relevant event (e.g. late completion).

Are liquidated damages the sole and exclusive remedy for construction contract breaches?

It's all in the construction of the...