Liquidated damages can turn a profitable job into a financial disaster overnight. If your main contractor is threatening to deduct liquidated damages because of a delay, it is essential to understand whether that deduction is actually valid – and whether it should be your responsibility at all.
What Are Liquidated Damages?
Liquidated damages (often shortened to “LDs”) are a pre-agreed sum written into a contract, payable if a project finishes later than the agreed completion date. Rather than proving actual financial loss in court, the paying party can simply apply the pre-agreed daily or weekly rate for every day the project overruns.
How LDs Get Applied to Subcontractors
Main contractors sometimes pass liquidated damages down the chain, deducting a share of their own LD exposure from a subcontractor’s payment. This is only enforceable if your specific subcontract actually includes an LD clause – and even then, only for delays that are genuinely your responsibility, not delays caused by the main contractor or other trades.
Common Ways LDs Are Miscalculated or Misapplied
LDs are frequently applied incorrectly. Common issues include: deducting the full contract-level LD rate rather than a fair, proportionate share; ignoring extension of time claims you may be entitled to; and applying LDs for delays that were actually caused by late instructions, design changes, or other trades on site.
What to Check Before You Sign
Before agreeing to a subcontract, check whether an LD clause exists at all, what the daily or weekly rate is, and whether it’s capped at a reasonable maximum. If you are already facing an LD deduction, check whether you submitted (or were entitled to submit) an extension of time request, and whether the delay was genuinely within your control.
Not sure if the liquidated damages clause in your contract is fair – or even enforceable? Trade Contracts Simplified can review your JCT subcontract and flag risky clauses like this in under two minutes, free to start, no payment details required: Trade Contracts Simplified