Liquidated Damages

Published February 2000

When late completion of a project will result in financial losses to the owner that would be difficult to determine exactly, an agreement is reached between the owner and the contractor to have the contractor pay the owner a pre-agreed amount as liquidated damages. This is usually on the basis of a set dollar amount for each day the work exceeds the contract time. Courts generally hold that, to be enforceable, the amount specified as liquidated damages must be reasonably related to probable actual financial damages.