What is an LD in Construction Law?

February 16, 2024

Co-written with Naveed Hanif of Pinsent Masons

Liquidated damages ('LD' or 'LAD') are a sum of money stipulated in a contract that can be paid to one contractual party for a breach of another's obligation. They are often used to remedy late completion of works. LD amounts are usually expressed as a dollar value per day of delay. They are different from general damages ('GDs') for delay, which must be proved by the injured party - unless a GDs clause expressly excludes the need to prove loss – and will need to comply with usual contractual damages claims requirements such as foreseeability, remoteness and the duty to mitigate.

LDs are generally enforceable, so long as the parties have been clear about their intentions and the LD amount is not extravagant or unconscionable. However, there are some caveats to this, as reflected in a recent decision of the Court of Appeal in Georgia in El Makdessi v City of Brookhaven.

The case concerned commodities trader PTT and its software contractor, Triple Point. The case revolved around a dispute over LDs payable by Triple Point for delays to a project.

The LDs were set at $1,000 per day of delay. The court re-iterated that it was up to the parties in their contract to decide what their rights and obligations were and that they were free to agree a provision for damages if there was a breach, provided that that agreement did not violate a principle of law. To satisfy this test, the court said that the LDs must be a genuine pre-estimate of the probable loss, not a penalty, and must be a reasonable estimate of the losses suffered as a result of the delay.

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