Liquidated Damages are the most common way to shift risk from the owner to the contractor. Liquidated damages incentivize the contractor to perform the contract within the agreed-upon time. Because certain projects are very time sensitive, having a liquidated damages clause can protect the owner from losing profits from late completion of the project.
Liquidated damages clauses usually stipulate to a per diem penalty rate, agreed upon by both parties. The courts will not recognize and uphold a liquidated damages clause if the damages are unreasonable (they unjustly compensate the owner).
We recommend that you visit with one of our attorneys if you have questions about the liquidated damages in your construction contract, or with issues surrounding the enforcement of the liquidated damages clause.