Glossary

Liquidated Damages (Construction)

Also known as: LDs, Per-Diem Delay Damages, LD

In a construction contract, liquidated damages is a pre-agreed daily dollar amount the contractor owes the owner for each day the project runs past the contractually specified substantial completion date, compensating for the owner's actual but hard-to-prove delay costs.

To be enforceable, the liquidated damages rate must be a reasonable pre-estimate—made at the time of contracting—of the owner's actual anticipated harm from delay (lost rental income, extended construction-loan interest carry, loan extension fees), rather than a punitive penalty designed simply to coerce performance; courts will strike an LD provision found to be a penalty. Contracts often pair an LD clause with a complementary early-completion bonus to align incentives in both directions. The LD clock's practical operation depends heavily on the contract's excusable-delay and force majeure provisions, which can extend the substantial completion deadline—and correspondingly toll LD accrual—for owner-caused delays, differing site conditions, or events genuinely outside the contractor's control, making the definition of what counts as an excusable delay one of the most heavily negotiated sections of the contract.