Liquidated damages are a pre-agreed dollar amount, usually per calendar day, that the contractor pays if it misses the contract completion date, typically substantial completion. They replace the need for the owner to prove actual delay costs. To be enforceable, LDs generally must be a reasonable pre-estimate of the owner’s likely damages at the time of contracting, not a penalty designed to punish.
Why it matters
LDs can wipe out margin quickly. They also make schedule documentation essential: only delays the contractor caused should count. Excusable delays, like owner changes or unusual weather if the contract allows, should earn time extensions that push the LD date out.
Worked example
Illustrative: a contract sets LDs at $5,000 per calendar day. The job reaches substantial completion 18 days late. Gross LDs are $90,000. If the contractor documents that 7 of those days came from the owner’s late answer to RFI-212 and gets a time extension, LDs drop to 11 days, or $55,000.
Common mistakes
- Failing to submit timely notice and time-extension requests for owner-caused delays.
- Not flowing LDs down to subs whose delays caused them.
- Assuming LDs are unenforceable because they feel high; courts look at reasonableness at signing.
How os.construction handles it
We’re building RFIs, change events and schedule impacts on one record, so the paper trail for a time extension is gathered as work happens. It’s in development with founding contractors.