Liquidated damages

Liquidated damages convert a lawsuit into arithmetic. Rather than proving actual loss when the contractor finishes late, the owner deducts the agreed rate per day; rather than litigating a plant that makes ninety-seven percent of guaranteed capacity, the parties apply the agreed price per missing percent. The sums are set at contract as a genuine pre-estimate of the loss — a characterisation with legal weight, since jurisdictions differ sharply in their tolerance of amounts that look punitive rather than compensatory — and they typically operate under caps, expressed as a percentage of contract price, with delay and performance LDs sometimes sharing an aggregate ceiling.

LDs discipline both parties' behaviour before any breach occurs. The contractor prices them into its risk and its schedule contingency; the owner, by fixing them, usually accepts them as the exclusive remedy for the failure they cover — a term worth reading as carefully as the rate.

Set wrong, they misfire in both directions: too low, and the LDs become a cheap option — the contractor rationally pays them to divert resources to a better-paying deadline elsewhere; too high, and they return in the bid price as premium, or in court as an unenforceable penalty. The cap's exhaustion is the other cliff: what rights revive when the LDs run out is a question best answered at drafting, not at month fourteen of delay.