Question

One common provision in Contracts is Liquidated Damages.

What is Liquidated Damages?

Have you had any experience with this clause in any of your projects?

Answer 1

Liquidated Damages are the damages, for which the party expect the compensation for the breach of contract. A liquidated damages are compensated by predetermined amount of money that must be paid as damages for the failure to perform under a contract.

We had once experienced with this clause, when the equipment maintainance contract was given to one of the supplier. While drafting the agreement, we will specify the compensation for Liquidated damages. In case if there is a long delay in attending the breakdown call for equipment, which is generating high revenue on daily basis, it breaches the contract, where in contract it has been agreed to attend breakdown within the time specified in the agreement. As per the contract, the revenue loss due to delay in attending the breakdown, can be compensated from the supplier. But sometimes, as a goodwill, these kind of things will be discussed among the stakeholders and gets compromised and care will be taken in future to avoid the occurance of such mistakes.