Delay Damages in Construction Contracts
Liquidated damages are a sum agreed in the contract, deducted for each period of non-excusable delay, up to a stated cap and without any need to prove actual loss.
How they are calculated
Damages are usually drafted as a percentage of the contract value for each week or day of delay, or as a lump sum per day. Three things matter when reading the clause: what value they are calculated on — the whole contract or only the delayed part — what date they run from, and what their upper cap is. A difference in any one of the three changes the risk considerably.
The cap, and why it matters
Most contracts set a cap on the damages, and in government tendering the regulations set caps that differ between supply contracts and works contracts, carried into the conditions of each tender — so read the clause there rather than assuming it. The cap is the maximum possible loss from time, and knowing it feeds directly into pricing the risk when studying the tender.
When they are not due
No damages are due for a delay caused by the employer or by an event outside the contractor’s control: late possession of the site, late approval of documents, variations affecting the critical path, or force majeure. But relief is not automatic — it requires a documented request for an extension of time within the contractual deadlines, supported by an analysis of the effect on the programme.
How a contractor protects itself
The protection is administrative, not merely legal: a written notice as soon as any obstruction occurs, an updated programme proving its effect on the critical path, and meeting minutes recording the delays as they happen. Whoever waits until the end of the project to ask for an extension has already lost their strongest evidence.
Worked example
A SAR 12 million contract with damages of 0.5% per week capped at 10%: a six-week delay means SAR 360,000. The contractor proved that three of those weeks were caused by the owner’s late approval of façade samples, and was granted an extension for them after submitting a critical-path impact analysis, bringing the damages down to SAR 180,000.
FAQ
Can damages be challenged after they have been deducted?
Yes, through the contractual claims route, but the chances depend on notices and analyses having been submitted at the time. A late objection without supporting documents rarely succeeds.
Are damages counted on holidays?
It depends on the drafting. The default is that the contract period runs in calendar days unless stated otherwise, so read the definition of “day” in the general conditions before you bid.
What is the difference between delay damages and withdrawing the works?
Damages are a financial deduction while the contract continues; withdrawing the works is a far graver step taken on serious default or on exceeding the caps, leading to the works being completed at the contractor’s expense and the guarantee being called.
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