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Liquidated Damages

Liquidated Damages

Definition

Damages of a stipulated amount as agreed upon in a contract. Liquidated damages are often used in lieu of actual damages, especially in construction contracts. For example, a contractor may be liable for $10,000 per day for each day required to complete a project beyond the agreed-upon completion date. Liquidated damages are not intended to be punitive and must have a reasonable correlation to anticipated actual damages. Most contractors prefer liquidated damages provisions (as opposed to being liable for actual damages) because they offer greater ability to quantify the risk.

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