Delays in construction projects can have costly consequences. Whether it’s a new housing development, commercial build or infrastructure scheme, every day of lost time may result in financial penalties, strained relationships and legal disputes.
One of the most common mechanisms for dealing with late completion is the use of liquidated damages. But what exactly are they – and how do you know when a delay has occurred?
In this article, we explain what counts as a delay in construction contracts, how liquidated damages work and what both employers and contractors need to know to protect their interests. You can also benefit from a free 30-minute consultation with our liquidated damages solicitors to discuss any of these matters in more detail.
What are liquidated damages?
Liquidated damages (LDs) are pre-agreed financial penalties set out in a construction contract. They are payable by the contractor to the employer if the project is not completed by the agreed date – unless there’s an accepted reason for the delay.
Rather than arguing over actual losses later, LDs provide a fixed daily or weekly sum that the employer can claim for each period the works are late.
For example – If a contract states £2,000 per day in liquidated damages and the project is 15 days late without justification, the contractor may owe £30,000 in LDs.
These sums are not intended as punishment – they are meant to reflect the likely losses the employer would suffer due to the delay, such as lost rental income or operational downtime.
What counts as a delay in construction?
In construction contracts, a delay typically refers to failure to complete the works by the contractual completion date. This date is clearly set out in the contract or determined through a programme of works.
Delays can arise from a range of causes, including:
- Poor weather
- Labour shortages
- Supply chain issues
- Poor project management
- Late design changes
- Unforeseen ground conditions
However, not all delays automatically result in liability for LDs. Contracts will often include extension of time provisions, allowing the contractor to apply for more time if the delay was caused by events outside their control.
Key types of delay
Understanding the type of delay is crucial in determining whether LDs apply.
1. Contractor delay (culpable delay)
This is where the delay is solely the fault of the contractor – for example, due to poor planning, staff shortages or slow work progress.
In these cases, the employer may be entitled to claim liquidated damages.
2. Employer delay (compensable delay)
If the delay is caused by the employer – such as late access to site, delayed approvals or failure to provide information – the contractor may be entitled to additional time and/or compensation.
Liquidated damages do not apply here, as the delay was not the contractor’s fault.
3. Neutral delay
These are events outside both parties’ control – such as force majeure, extreme weather or pandemic-related shutdowns.
Most standard form contracts allow an extension of time in such cases but without financial compensation to either party.
How are liquidated damages calculated?
The amount of liquidated damages must be:
- Agreed at the time of contract formation
- A genuine pre-estimate of the likely loss
- Proportionate to the potential impact of the delay
If the amount is seen as excessive or punitive, it may be deemed unenforceable by a court, adjudicator or dispute resolution solicitor.
Typical considerations in calculating LDs include:
- Loss of rental or operational income
- Additional costs of temporary accommodation or logistics
- Interest on delayed payments or loans
- Reputational or contractual penalties with third parties
A properly drafted contract will state the amount of LDs clearly and how they apply – for example, “£5,000 per calendar day from the date for completion until practical completion”.
How do you know when a delay has occurred?
Delay is usually determined by comparing actual progress to the contractual programme or completion date. Key indicators include:
- Missed milestone dates
- Delays in critical path activities
- Late completion of practical or substantial works
- Formal notice from the contractor requesting more time
- Employer notices warning of non-completion
Many contracts require both parties to issue and respond to formal notices of delay, which are essential in preserving rights under the contract.
Can a contractor defend against liquidated damages?
Yes – contractors can often defend against LDs by:
- Applying for an extension of time under the contract
- Showing that the delay was due to employer risk events
- Demonstrating that concurrent delays occurred (i.e. both parties contributed)
- Arguing that LDs are a penalty and not enforceable
Timing is crucial. Contractors must usually notify the employer of delays as soon as they occur and follow the contractual procedures for seeking extensions of time.
Failure to do so may mean losing the right to avoid LDs, even if the delay was not entirely their fault.
What if liquidated damages are not included in the contract?
If no LDs are specified, the employer may still claim for actual losses under general damages. However, this can be much more difficult to prove, requiring detailed evidence of loss and often leading to disputes.
Including LDs in a contract offers both parties more certainty and helps avoid lengthy arguments later.
Advice for employers and contractors
For employers:
- Ensure your contract includes a realistic LD clause
- Keep detailed records of delays and losses
- Follow contract notice procedures strictly
- Don’t rely on LDs to cover project inefficiencies
For contractors:
- Monitor progress closely and update programmes regularly
- Notify the employer immediately of any delay events
- Maintain records showing the cause of delays
- Seek extensions of time through the proper process
Get legal advice on construction delays and liquidated damages
Disputes over delay and liquidated damages can escalate quickly – especially on larger or high-stakes projects. Whether you’re an employer trying to enforce your rights or a contractor defending against penalties, clear legal advice is essential.
At Osbourne Pinner Solicitors, we provide expert legal support in all aspects of construction law – including contract drafting, delay analysis and dispute resolution.
Our commercial property solicitors offer a free 30-minute consultation at our offices in Harrow, Canary Wharf, Piccadilly Circus or Manchester City Centre. You can also speak to us on a video call if that’s easier. Ready to book in your session? Call 0203 983 5080, email [email protected] or use the enquiry form below.
