Liquidated damages
LADs / Liquidated and ascertained damages · LADs
Liquidated damages are a pre-agreed amount or calculation intended to compensate for specified loss caused by delay or another defined failure, rather than requiring the loss to be proved afterwards.
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Simply put
What it means in ordinary work
The contract sets the compensation in advance. The amount should reflect a genuine estimate of loss, not operate as a punishment.
Why it matters
A well-designed regime can make remedies predictable and focus attention on delivery. A poorly designed one may be unenforceable, commercially disproportionate or disconnected from actual harm.
A hypothetical in practice
A hypothetical equipment contract sets a daily credit for late commissioning, capped at a percentage of the contract price. The buyer checks that the calculation reflects likely lost use and that the cap is acceptable.
Common pitfalls
Calling a charge liquidated damages does not make it enforceable. The governing law and the estimate of loss matter.
Double recovery through damages, service credits and termination rights should be addressed explicitly.
Scope and limits
General commercial explanation only. Enforceability, penalties and remedy rules depend on the governing law and precise wording.
Regional lens
How this lands where you work
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As-of date for date-sensitive regional content: 5 November 2026. Read the review policy.