The real cost of a missed notice: liquidated damages, explained in numbers

Liquidated damages exist to compensate an employer for late completion without either side having to prove actual loss in court. The rate and cap are agreed up front, usually as a percentage of contract value per day or week of culpable delay, capped at a stated ceiling, commonly around 10% of contract value on Gulf projects. On their own, LD clauses are a routine, well-understood piece of risk allocation. The part that catches contractors out is not the clause itself, it is what happens when a genuine, provable delay fails to get the paperwork that would have excused it.

The mechanism that converts a good delay into a bad one

An extension of time exists to shift a delay from the culpable column to the excusable column, removing it from LD exposure. But that shift is not automatic. It depends on the contractor following the contract's own notice and claim procedure, and on a strict reading of a condition precedent clause like FIDIC's Sub-Clause 20.1, missing that procedure can mean the delay stays culpable even though everyone privately agrees the employer caused it.

At a fairly typical 0.10% per day rate, a USD 50 million contract accrues LD exposure of USD 50,000 for every single day of culpable delay. One missed 28-day notice window, on a delay that would otherwise have been fully excusable, can therefore convert into USD 1.4 million of exposure on that contract value alone, and considerably more on a larger project. That single procedural miss, not the underlying cause of the delay, is what decides whether that number applies.

It is bigger than the LD line item

The LD figure is the most visible cost, but it is rarely the only one. An extension of time that is granted usually comes with an entitlement to claim prolongation cost, the money for staying on site longer: idle plant and equipment, retained supervision staff, extended site establishment. A time-barred claim typically forfeits both sides of that ledger at once: the time relief and the associated cost recovery.

Why smaller delays get written off, and why that is expensive too

Formal claims consultants are usually engaged for large, clearly valuable delays, because their fees only make sense against a large enough number. That leaves a category of smaller, individually modest delays that quietly get absorbed and never claimed at all, not because they were not genuine, but because pursuing them through a traditional consultant engagement was not economically worth it. Across a project with dozens of minor hindrances, that absorbed total can add up to a meaningful sum that was simply never recovered.

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.