What are liquidated damages?

Liquidated damages included in a direct government contract reference FAR 11.5, and are intended for use when:

  1. The time of delivery or timely performance is so important that the Government may reasonably expect to suffer damage if the delivery or performance is delinquent; and
  2. The extent or amount of such damage would be difficult or impossible to estimate accurately or prove.

Contracts call for liquidated damages where actual damages, though real, are difficult or impossible to prove.┬áNote that liquidated damages are not punitive and not considered “penalties.” Clauses quantify damages as a percent of the item(s) late with both a daily rate and a maximum amount. Examples include, “1% of the line item value per day with a maximum of 20% of the line item(s) or entire value of the contract. Grace periods may be included – read your contract carefully and know the risk involved. Read more about risk mitigation in our resources.

Remember that waiver of liquidated damages by the customer on one delivery does not imply waiver on all deliveries, nor does it imply waiver of other remedies available within the contract or at law.

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