Liquidated Damages (LD)

Liquidated Damages (LD) is a sum, fixed in the contract in advance, that the contractor must pay (usually deducted from running bills) for each day/week of delay in completing the works beyond the contractual completion date (as extended by any granted Extension of Time). Being a genuine pre-estimate of the employer's likely loss from late completion, it spares the employer from having to prove actual damages — distinguishing it from a true 'penalty', which Indian courts (Section 74, Indian Contract Act) will not enforce beyond reasonable compensation.

LD is typically expressed as a percentage of contract value per week (e.g. 0.5-1% per week) capped at an overall maximum (commonly 5-10% of contract value). It applies only to culpable contractor delay — Extension of Time for employer-caused or excepted-risk delays must first be assessed, otherwise the LD clause can become unenforceable. LD recovery, EoT and delay analysis are among the most litigated areas of construction contracts.