Liquidated Damages

Definition

A financial penalty issued to the contractor for not completing the project by a specified date. An amount of money agreed upon by the parties at the time of contract signing that establishes the damages that can be recovered in the event a party breaches the contract.

Purpose

Liquidated damages provide a pre-determined compensation for losses incurred due to delays or breaches of contract. This helps ensure timely completion of projects and provides a clear remedy for the aggrieved party.

Examples of Use

• Construction contracts: Imposing penalties on contractors for failing to complete the project on schedule.
• Service agreements: Establishing compensation for delays or non-performance in service delivery.
• Sales contracts: Setting damages for failure to deliver goods or meet contractual obligations.

Related Terms

• Penalty Clause: A provision in a contract that imposes a penalty for breach or non-performance.
• Breach of Contract: A violation of any of the agreed-upon terms and conditions of a binding contract.
• Compensatory Damages: Money awarded to compensate for actual losses suffered.

Notes

• The amount of liquidated damages must be a reasonable estimate of actual losses and not a punitive measure.
• Both parties must agree to the liquidated damages clause at the time of contract signing.
• Courts may not enforce liquidated damages if deemed excessive or unreasonable.