Liquidated damages in construction, worked out

What makes the clause work

Courts in most places look at two questions when a contractor challenges a liquidated damages clause:

• Was the owner's actual loss hard to estimate when the contract was signed? If it was easy to measure, there is less reason for a fixed number.
• Was the daily amount a reasonable forecast of that loss? A number set to frighten the contractor into finishing, rather than to estimate the owner's harm, can be treated as a penalty, and a penalty is usually not enforceable.

How each state's courts apply those tests differs, so treat this as the general idea and read the contract and the law for the job in front of you. The owner does not usually have to prove its actual loss to collect liquidated damages, which is the point of the clause.

What the clause usually says

• The daily rate, and whether days are calendar days or working days.
• The milestone that stops the count, most often substantial completion rather than final completion. See substantial completion and punch lists.
• How the owner collects, usually by deducting from payments still owed, including retainage.
• Whether liquidated damages are the owner's only remedy for delay. Many contracts say they are, which caps the contractor's exposure to the daily rate times the days late.

Some contracts pair the clause with an early completion bonus. Others have a no-damages-for-delay clause, which is a different thing: it limits what the contractor can recover from the owner for owner-caused delay. Do not mix the two up.

Time extensions change the count

Liquidated damages run only for unexcused delay. If the contract grants more time for a delay, the completion date moves and the count starts later. Delays commonly treated as excusable include owner-ordered changes, unusually severe weather beyond what the contract expects, and differing site conditions. Each contract lists its own causes and the notice the contractor must give. A contractor who does not ask for the extension in time can lose it, even for a delay it did not cause.

A worked example with invented numbers

The contract allows 300 calendar days from the notice to proceed and sets liquidated damages at $1,200 per calendar day until substantial completion.

• Substantial completion is reached 23 days after the contract completion date.
• The owner granted a 6-day extension for an owner-ordered change.
• Unexcused days: 23 - 6 = 17
• Liquidated damages: 17 x 1,200 = $20,400

Check: 20,400 / 1,200 = 17, and 17 + 6 = 23.

Now the effect on the job. The contract sum is $1,600,000 and the contractor planned a profit of $96,000, which is 6% of the contract.

• Profit after liquidated damages: 96,000 - 20,400 = $75,600
• Share of planned profit lost: 20,400 / 96,000 = 21.25%

Check: 96,000 x 0.2125 = 20,400, and 75,600 + 20,400 = 96,000. Seventeen days of slip cost about a fifth of the profit, which is why a contractor prices schedule risk at bid time.

Passing damages to subcontractors

A subcontract can make a sub responsible for its share of the owner's liquidated damages when that sub causes the delay. If two causes overlap, sorting out who owes what turns on the schedule and the records. A CPM schedule updated through the job is the usual evidence of which delay was on the critical path.

Common mix-ups

• Calling every daily charge a penalty. A reasonable pre-estimate of loss is liquidated damages. Only a number that is not a fair estimate risks being treated as a penalty.
• Counting to final completion. Most contracts stop the count at substantial completion. Read the clause.
• Forgetting excused days. Subtract granted extensions before you multiply.
• Mixing calendar and working days. A rate per calendar day counts weekends and holidays.
• Stating one state's rule as the rule. Enforceability tests differ by jurisdiction.

On the NASCLA exam

The bulletin lists subject areas, not topics. We place contract clauses like this one under Procurement and Contracting Requirements, 31 of the 115 scored questions. Contract law topics fit the NASCLA Contractors Guide to Business, Law and Project Management by its title, so tab its contracts topic. The arithmetic is short: excused days out first, then multiply, then check by dividing.

Practice it

Work out the completion date from a notice to proceed in notice to proceed and contract time, then run a late finish through this page. Damages are often taken from retainage, so read the two together.

Take the free 10-question check

Start the free 10-question check. It is weighted to the twelve NASCLA subject areas, needs no signup and explains every answer, so you see which area to study first.

The NASCLA Commercial course has a lesson for each of the 12 subject areas that shows which listed reference to open and how to apply it, original practice questions with every answer worked, and four timed practice exams of 115 questions on a 330-minute clock. Your scores come back by subject area, so you know where the next study hour goes. See the course.

Not affiliated with or endorsed by NASCLA or PSI. NASCLA and PSI are named only to identify the exam and its test vendor.

Sources

Show the list

• PSI Candidate Information Bulletin 1458, content outline and reference list, updated 7 Jul 2026. Retrieved 5 Nov 2026.
• NASCLA Commercial Exam, NASCLA. Retrieved 5 Nov 2026.
• All examples use invented numbers. Contract terms are described in general; enforceability is decided by each jurisdiction's law.