What are liquidated damages in a construction contract?
Liquidated damages are a sum fixed in the contract that a contractor pays the client for each period of delay in completion, agreed in advance so the client does not have to prove its exact loss.
Also called LD, delay damages, compensation for delay.
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Liquidated damages in plain words
The contract names a rate, such as an amount per week of delay, and usually a ceiling. If the contractor finishes late and the delay is its own, the client deducts the amount from payments due, often from the next running bill.
Why does liquidated damages matter?
Damages are deducted from cash, so they show up as a shortfall on a bill that was otherwise certified in full. A delay that cost the contractor nothing in its own costs can still cost it a slice of every bill.
Where does liquidated damages mislead?
Under section 74 of the Indian Contract Act, 1872, a party is entitled to reasonable compensation not exceeding the amount named in the contract, and courts have not treated the named sum as automatic in every case. The rate and the ceiling come from the contract, so read them there. Take legal advice before relying on or disputing a deduction.
What do people get wrong about liquidated damages?
- Not claiming an extension of time first
- Delay caused by the client is not the contractor's delay. If the extension was never requested in the form and window the contract asks for, the damages can stand.
- Treating the deduction as final
- A deduction taken from a bill can be disputed and recovered. Leaving it in the ledger as a cost means nobody tries.
How does Crestline measure liquidated damages?
Crestline links delay damages to the extension of time claims behind them, so a deduction taken while a claim is still open is visible as a dispute and not as a settled cost.
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