Liquidated Damages

Conceptually, an owner’s delay damages are either Liquidated Damages or actual damages. The reason that owners use liquidated damages to quantify and collect delay damages when the project duration is extended by a contractor delay is due to the fact that it may be difficult or practically impossible for owners to accurately determine their actual damages before the contract is executed. Therefore, owners rely on liquidated damages to recover a reasonable estimate of the damages that they will incur if the project is delayed by the contractor. Typically, liquidated damages are calculated as a daily rate. Similar to both extended field overhead and unabsorbed home office overhead, liquidated damages result from only critical project delay.

Owners should rely on advice from counsel when calculating the amount of liquidated damages to ensure jurisdictional compliance. However, some of the costs that an owner should consider when preparing an estimate of liquidated damages are as follows:

  • Cost for project inspection
  • Costs for continued design services
  • Costs for the owner’s staff
  • Costs for maintaining current facilities
  • Costs for additional rentals
  • Costs for additional storage
  • Lost revenues
  • Costs to the public for not having beneficial use of the facility
  • Additional moving expense
  • Escalation costs
  • Financing costs