Liquidated Damages

Liquidated damages — LDs — are the pre-agreed sum payable by the contractor for failing to complete by the completion date, operating as the employer\'s exclusive delay remedy provided they represent a genuine pre-estimate of loss.

Where it sits: The test of validity remains Dunlop v New Garage [1915] AC 79 as refined by Cavendish Square v Makdessi [2015] UKSC 67 — legitimate interest, not penalty. JCT 2016 cl.2.31-2.32; NEC4 uses X7 (delay damages).

LDs are a deal about risk, priced at tender. The employer buys certainty — no proving actual loss — and the contractor buys a ceiling. The number only survives challenge if someone genuinely tried to estimate delay cost when the contract was made; a figure plucked to frighten is a penalty and unenforceable.

The interplay with extensions of time is where the money lives. No extension, and LDs accrue to the last day; extension granted, and the LD window moves with the completion date. The notices, the programme records and the arithmetic of the adjustment decide more disputes than the rate itself.