Definition:
Pre-agreed financial penalties imposed on the contractor for failing to meet project deadlines or performance requirements.
Key Components:
- Time-Based LDs: Penalties for project completion delays.
- Performance-Based LDs: Fines for failing to meet operational standards.
- Pre-Defined Compensation: Fixed amounts specified in the contract.
Use Cases/Industries:
- Power Plant Construction: Penalties for missing the commissioning deadline.
- Renewable Energy Projects: Fines for underperforming wind or solar farm output.
- Pipeline Development: LDs for failure to complete critical sections on schedule.
Advantages:
- Encourages Timely Completion: Motivates contractors to adhere to schedules.
- Provides Compensation: Offsets financial losses incurred due to delays.
Challenges:
- Contractual Disputes: Disagreements over responsibility for delays.
- Burden on Contractors: May discourage bids from smaller firms with limited risk tolerance.
Related Terms:
Delay Penalties, Performance Bonds, Contractual Remedies
Example:
A contractor building a gas-fired power plant incurs $100,000 per week in liquidated damages for failing to meet the agreed commissioning date.
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Synonyms:
Contractual Penalties, Delay Damages, Performance-Based Fines
