What are 'liquidated damages' in construction contracts?

Liquidated damages in construction contracts refer to a specific, predetermined amount that one party agrees to pay the other for each day a project is delayed beyond the established completion date. This provision is included in contracts to provide a clear financial consequence for delays, thereby incentivizing timely completion of the project. The amount is typically agreed upon during the contract negotiation and is meant to reflect an estimate of the potential losses or inconveniences that delays may cause the project owner.

This mechanism is critical for ensuring that the project stays on schedule and offers a way to resolve disputes over delay impacts without the need for lengthy litigation. It also helps manage expectations regarding deadlines and the implications of not meeting those deadlines, which is vital in commercial construction where timing can affect costs and other related projects.

In cases where completion is delayed for reasons outside of a contractor's control, liquidated damages would typically not apply, providing a fair approach to accountability and risk management in construction agreements.