Definition
What it means
Liquidated damages (LDs) are a pre-agreed daily or weekly penalty the contractor pays the customer if the project runs past the contractual completion date. The amount is set in the contract before work starts (typically a defensible estimate of the customer's actual loss, such as lost rent or lost trading days). Unlike actual damages, LDs do not require the customer to prove the loss.
When liquidated damages apply
Standard on commercial construction and any project where late completion costs the customer real money (a shop opening, a tenant moving in, an event venue going live). The LD rate per day might be a few hundred dollars on small commercial work, or tens of thousands on major construction. Always negotiated and stated in the contract.
Protecting yourself as the contractor
Push back on unreasonable LD rates during quote negotiation. Track every customer-caused delay (late variations, delayed material decisions, site-access issues) and document them as extensions of time. Stay in writing on every delay. LDs only stick if the contractor caused the delay; documented customer-caused delays extend the date.
How to reflect LDs on a quote and invoice
On the quote, reference the LD clause from the contract so the customer sees you've read it. On the final invoice, if the project finished on time, no LD adjustment. If late and you accept the LDs apply, show as a deduction line. Never quietly absorb LDs without documenting them.
Related terms
Other glossary entries you might want next
Closely related terms in the trades-finance vocabulary, with the same plain-English treatment.
Scope of Work
A precise list of what the quote covers and what it does not. Protects you from scope creep and protects the customer from surprise charges.
Variation Order
A written change to the agreed scope, raised when the customer asks for extra work after acceptance. Quoted, accepted, and added as its own line.
Retention
A percentage of each progress payment the customer holds back until the job is complete and defects-liability has expired. Standard on commercial work.
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