Glossary · also called LD, LDs, Compensation for delay, Delay damages
What are Liquidated Damages (LD) in Construction?
Liquidated damages: Liquidated damages (LD) are a sum agreed in a contract that the contractor pays the client for each period of delay beyond the completion date, typically a percentage of the contract value per week, subject to a maximum cap. In India they are usually recovered by deduction from the contractor's RA bills or final bill.
Definition
When a project finishes late, the client loses money — rent, production, interest. Rather than prove the actual loss each time, the parties agree a figure in advance: the liquidated damages. The clause usually sets a rate (for example, a percentage of contract value per week or per day of delay) and a maximum, often expressed as a percentage of the contract value.
Under Indian law (section 74 of the Indian Contract Act, 1872), a party can recover reasonable compensation up to the amount stated in the contract; the stated figure works as a ceiling rather than an automatic entitlement. Delay caused by the client, or by events the contract excuses, normally entitles the contractor to an extension of time, which affects whether LDs apply. Take legal advice on specific disputes.
How it works
An example, with illustrative terms only: a ₹2 crore contract with LD at 0.5% of contract value per week of delay, capped at 10% of contract value.
- Rate: 0.5% × ₹2,00,00,000 = ₹1,00,000 per week.
- Cap: 10% × ₹2,00,00,000 = ₹20,00,000.
- Completion is 6 weeks late with no extension granted: LD = 6 × ₹1,00,000 = ₹6,00,000.
The client would typically deduct this from the next RA bill or the final bill, in addition to retention money and advance recovery.
Why it matters
- It directly reduces margin, and the cap can be large relative to profit.
- Extensions of time must be claimed on time, with evidence. Daily site records such as a DPR are often what supports a claim for delay caused by others.
- Subcontracts. If you pass delay risk to subcontractors, align their LD terms with yours.
- Interaction with the defect liability period and final settlement: LDs are often settled at the final bill.
In Zaptiz
Zaptiz Construction records LD terms at contract award and applies LDs as a deduction on RA bills where they apply. Daily progress reports, the project schedule and the project timeline keep the site record you need when delays are discussed.