Liquidated damages in construction contracts
Liquidated damages in construction contracts

The following Construction guidance note provides comprehensive and up to date legal information covering:

  • Liquidated damages in construction contracts
  • What are liquidated damages?
  • LADs clauses in construction contracts
  • The difference between liquidated damages and general damages
  • How much should LADs be?
  • Capping liquidated damages
  • Common grounds for challenging LADs clauses
  • Clause is a penalty
  • Void for uncertainty
  • Acts of prevention
  • more

This Practice Note explains what liquidated and ascertained damages (LADs/LDs) are and their purpose in a building contract. It considers the difference between liquidated damages and general (or unliquidated) damages and looks at the enforceability of LADs provisions and common grounds for challenging them (including that the clause is a penalty). The Practice Note also looks at how much LADs should be, capping LADs and the risks of inserting ‘nil’ or ‘N/A’ as the amount of LADs.

What are liquidated damages?

If the parties to a construction contract agree to liquidated damages, they are agreeing, in advance, to a fixed sum that will be payable as damages in the event that a particular identified breach of contract occurs. Liquidated damages are often also referred to as liquidated and ascertained damages and the acronyms ‘LDs’ and ‘LADs’ are both commonly used to refer to them.

When liability for LADs occurs, they can typically be paid either by the contractor to the employer or they can be deducted by the employer from sums due from it to the contractor.

LADs clauses in a contract must not be such that they amount to a penalty because penalty clauses are (in general) unenforceable. For more on when LADs will be a penalty/unenforceable, see: Clause is a penalty below.

LADs clauses in construction contracts

LADs are