What LDs Are

Liquidated damages, often shortened to LDs or LADs, are a pre-agreed sum written into a contract that becomes payable if a party fails to complete their work by the contractual completion date. Instead of the innocent party having to prove their actual loss after the fact, the contract fixes the amount in advance.

They're common in main contracts and get passed down into subcontracts too, sometimes fairly, sometimes not.



LADs vs Penalties (Enforceability)

This is the single most important distinction, and it's where a lot of LD deductions fall apart.

A liquidated damages clause is only enforceable if it represents a genuine pre-estimate of the loss likely to be suffered by the delay, agreed at the time the contract was signed. If the figure is instead set arbitrarily high, deliberately, as a deterrent rather than a genuine estimate of loss, the clause risks being treated as a penalty. Penalty clauses are not enforceable under English law.

Following the Supreme Court's decision in Cavendish Square Holding v Makdessi, the test has shifted somewhat, courts now look at whether the clause protects a legitimate commercial interest and whether it's extravagant or unconscionable compared to that interest, rather than a strict pre-estimate test alone. Even so, an LD figure that looks disconnected from any realistic loss is still worth scrutinising closely.

How LDs Are Calculated

A properly drafted LD clause will set a fixed rate, typically a sum per day or per week of delay, and cap the total at a maximum percentage of the contract sum. The rate should be traceable back to some genuine assessment of loss made at the time the contract was agreed, things like loss of rent, financing costs, or costs of alternative arrangements.

If you can't find any evidence of how the rate was actually calculated, or the rate seems to have been picked without real basis, that's worth raising directly.

Common Grounds to Challenge

A few recurring issues come up again and again in LD disputes:

• The rate wasn't a genuine pre-estimate of loss and looks more like a penalty
• The contractor didn't follow the correct process for deducting LDs, for example missing a required notice
• Concurrent delay exists, where the subcontractor and the employer or main contractor share responsibility for the same period of delay
• The completion date itself is disputed because of instructed variations or late information that were never properly accounted for
• No extension of time was granted for delay that was genuinely not the subcontractor's fault

Often it's a combination of these, not just one, that makes the deduction hard to defend.

How an EOT Defends Against LDs

This is usually the strongest defence available. If delay was caused by matters outside your control, late information, instructed changes, exceptionally adverse conditions, whatever your contract allows for, you may be entitled to an extension of time that moves the completion date itself.

If the completion date moves, the period against which LDs can be calculated shrinks, or disappears entirely. A successful EOT claim doesn't just excuse the delay, it can remove the basis for the LD deduction altogether.

Getting Help

LD deductions can look intimidating because they're presented as a fixed, contractual fact. In practice, a lot of them don't hold up once the contract mechanics and the underlying causation are properly examined.

RJH reviews LD deductions against the contract, checks whether the correct process was followed, and builds the EOT and loss and expense case needed to challenge them. If you're facing a deduction, it's worth getting it looked at before you accept it.