Liquidated damages in construction: what they are and how to bid a job that has them

Liquidated damages, or LDs, are a fixed amount per day that a contractor pays if the work isn't finished on time. A $1,000-a-day LD on a job that finishes three weeks late is $21,000 straight off your margin, so it belongs in your bid review, not just the contract fine print.

How LDs are supposed to work

Federal construction contracts are a useful reference point. Under FAR 11.501, Liquidated damages policy, contracting officers should use LD clauses only when timely performance is so important that the government can reasonably expect to suffer damage if it's late, and when the amount of that damage would be difficult or impossible to estimate accurately or prove. The rule states that LDs "are not punitive"; the rate "must be a reasonable forecast of just compensation for the harm" caused by late performance. It also allows a maximum amount or maximum period, and more than one rate if expected damage changes over the contract.

For construction, FAR 11.502, Liquidated damages procedures says the contract must describe the rate per day of delay, and that the rate should include the estimated daily cost of government inspection and superintendence, plus other expected costs of late completion such as renting substitute property.

The standard clause, FAR 52.211-12, Liquidated Damages, Construction, is short: the contractor pays the stated amount "for each calendar day of delay until the work is completed or accepted," and LDs continue to accrue if the government terminates the contractor's right to proceed. Note "calendar day," not working day.

What subcontractors should check

• Flow-down. Does your subcontract pass the owner's LDs to you? Only for delay you cause, and in proportion?
• Rate and cap. Is there a daily rate and a maximum? An uncapped LD can exceed your entire subcontract value.
• Time extensions. How do you request more time for weather, late access, change orders or owner delays? Missing a notice deadline can waive your right to an extension.
• End point. Do LDs stop at substantial completion or at final completion?
• Other delay damages. Could you face actual delay damages in addition to LDs?

How to price a job with LDs

1. Check the schedule against your realistic crew size and productivity. If the duration is tight, price more labor or overtime.
2. Add schedule risk to your contingency in proportion to the LD rate and how likely delay is.
3. Clarify in your proposal that your price assumes a specific start date, access and sequence (see bid clarifications).
4. Document delays as they happen: dated daily reports, photos and written notices protect you if LDs are assessed later.
5. Price change orders with time, not just dollars (see pricing change orders).

This is general information, not legal advice. Contract terms vary; have a construction attorney review anything you are unsure about before you sign.

Published October 28, 2026. We do not use affiliate links on this page; see our Affiliate Disclosure.