Liquidated damages:
what contractors get wrong
every time

What are liquidated damages — and what are they not?

Liquidated damages (LDs) are a pre-agreed sum payable by the contractor for each day (or week) of delay to the contractual completion date. They are not a penalty. Under English law — and in most common law jurisdictions — a clause is only enforceable as LDs if it represents a genuine pre-estimate of the employer's loss at the time of contracting.

The distinction matters. A penalty clause is unenforceable. A genuine LD clause is not only enforceable but caps the employer's delay damages at the agreed rate: if the employer's actual losses exceed the LD rate, they cannot recover more. This dual function — certainty for the employer, a cap for the contractor — is what makes LDs commercially attractive to both parties.

Mistake 1: Failing to serve timely notices

This is the most expensive mistake. Under NEC contracts, a compensation event notification must be served within eight weeks of the event occurring. Under JCT, notice of delay must be given "forthwith" or "as soon as it becomes reasonably apparent". Under FIDIC Red Book, notice must be given within 28 days.

Miss the notice deadline and you may lose your entitlement to an extension of time entirely — regardless of how compelling your delay evidence is. Courts and adjudicators apply notice provisions strictly, particularly in NEC contracts.

The fix: Implement a real-time delay event register. Every potential EoT event should be notified immediately, even before the full impact is known. You can always withdraw a notice; you cannot resurrect a missed one.

Mistake 2: Assuming the LD clause is unenforceable

Contractors routinely advise their lawyers to argue that an LD clause is an unenforceable penalty, hoping to escape liability entirely. In most cases, this strategy fails — and fails expensively, because it diverts resources from the more fruitful argument: that an extension of time should be granted.

Since Cavendish Square, the courts have set a high bar for finding a clause to be a penalty. Mere commercial imbalance is not enough. The clause must be "out of all proportion" to the employer's legitimate interest. High LD rates are routinely upheld where the employer can show a genuine interest in timely completion.

Mistake 3: Not analysing the prevention principle

The prevention principle holds that a party cannot insist on a contractual completion date if their own acts or omissions have prevented the contractor from achieving it. Where the prevention principle applies, time becomes "at large" — the LD mechanism ceases to operate, and the contractor's obligation is simply to complete within a reasonable time.

To trigger prevention, the contractor must show both that an act of prevention occurred and that the contract does not adequately provide for an extension of time to cover it. Many contractors fail to analyse this carefully enough, missing a powerful argument.

Mistake 4: Confusing the sectional completion dates

Where a contract contains sectional completion dates and separate LD rates for each section, meticulous care is required. LDs attach to each section independently. A delay to Section A does not affect the LD position for Section B. Getting the sections wrong — particularly when one section's work overlaps with another — can result in either underclaiming or overclaiming.

Mistake 5: Failing to argue concurrent delay properly

Where both the contractor and the employer have caused critical delay in the same period, the question of how to apportion responsibility is genuinely difficult. English law (following Malmaison) suggests that where there is true concurrency, the contractor gets an extension of time but no loss and expense. Scottish law (following City Inn) applies a broader apportionment approach.

Many contractors fail to properly characterise concurrent events, losing an extension of time entitlement they were legitimately entitled to.

Mistake 6: Not updating the programme

An extension of time claim built on a stale or unreliable programme will not succeed. The programme must be kept updated and must be demonstrably a genuine prediction of remaining works. If the programme has not been updated for six months, the delay analysis built on it is worthless.

Adjudicators regularly decline to award extensions of time where the contractor has failed to maintain a contemporaneous record of progress against the baseline.

Mistake 7: Agreeing a sectional LD rate without checking the maths

Construction lawyers and commercial managers sometimes agree LD rates in negotiation without stress-testing the figures. An LD rate set too high creates penalty risk. An LD rate set too low fails to protect the employer and may be challenged as not representing a genuine pre-estimate.

Before agreeing any LD rate, model the employer's anticipated losses from a delayed completion: financing costs, loss of rental income, cost of temporary accommodation, consequential losses from key dates. The LD rate should reflect those modelled losses.