Liquidated damages are a pre-agreed sum payable by the Contractor for each day or week that completion runs late through the Contractor's own fault. The arithmetic is simple. What goes wrong is the inputs: which date completion is measured against, which days count, and whether the delay was culpable at all.
The formula
LD payable = rate × period of culpable delay, subject to the cap. The rate is usually expressed as a percentage of the contract value per day or per week, or as a fixed sum. The cap is usually a percentage of the contract value, with 10 percent a common figure in Gulf contracts, though your contract governs.
Worked example
| Input | Value |
|---|---|
| Contract value | USD 50,000,000 |
| LD rate | 0.10 percent of contract value per calendar day |
| LD per day | USD 50,000 |
| Cap | 10 percent of contract value = USD 5,000,000 |
| Original Time for Completion | 28 February 2027 |
| Actual completion | 25 April 2027 (56 days late) |
| EOT granted | 28 days |
| Culpable delay | 56 minus 28 = 28 days |
| LD payable | 28 × USD 50,000 = USD 1,400,000, below the cap |
Illustrative figures. Change the EOT to zero, because the notice for the 28-day event was late and the entitlement was lost, and the LD figure doubles to USD 2,800,000. That is the entire business case for tracking notice deadlines, expressed in one line.
Four questions before the arithmetic
- Which completion date? The Time for Completion as extended by any EOT granted. Sectional completion dates may carry their own LD rates.
- Which days count? Calendar days, usually. Check whether the LD clause and the notice clause count the same way; they often do not.
- Was the delay culpable? LDs apply only to delay for which the Contractor is responsible. Employer-caused delay, once an EOT is granted, is excluded. Employer-caused delay for which no EOT was granted because the notice was late is, in effect, treated as culpable.
- Is there a cap, and what happens at it? Some contracts give the Employer a termination right once the cap is reached. Know where that line is.
Related but separate: prolongation cost
An EOT gives time and relieves LDs. It does not by itself give money. Prolongation cost, the Contractor's own extended time-related cost, is a separate claim with its own proof. Keep the two apart in the register and in the claim.
What this means in practice
- Record the LD rate, unit, and cap from your contract in the project setup on day one.
- Compute exposure per day, then per notice window; it makes the priority of each notice obvious.
- Every EOT day granted is an LD day avoided; every notice missed is an LD day accepted.
- Check whether reaching the cap triggers any termination right.
The DraftMyEOT project setup stores your LD rate and cap, and the homepage calculator shows the exposure of one missed notice window in two boxes.
Start a 48-hour draft →Sources
This article is general information about how these contract mechanisms typically work. It is not legal advice, and it is not a substitute for review of your specific contract by a qualified professional.