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LD (liquidated damages) on delayed projects
What it is
Pre-agreed compensation payable by a contractor for delayed completion or performance shortfall, usually a percentage of contract value per week capped at a ceiling. It is deducted from payments rather than claimed separately
It exists so the client need not prove actual loss
Impact on industries
- Converts schedule slippage directly into margin loss, and on a thin-margin fixed-price contract the LD ceiling can exceed the profit
- Applies even when delay is partly client-caused, since establishing responsibility takes arbitration the contractor must fund meanwhile
- Symmetrically, it disciplines the market - contractors who cannot execute are exposed, which protects credible players from irrational bidding
- Provisioning for LD is a judgement call, so reported profits on long projects depend on management's assessment of eventual liability