The Procurement Glossary » Liquidated Damages
Liquidated Damages
Contracts & Legal
Definition
A contractually fixed sum payable by a supplier for a specified breach, agreed in advance as a genuine estimate of the buyer's loss.
Explanation
Liquidated damages (LDs) avoid litigating actual loss: the amount is set in the contract, commonly for late delivery or completion. To be enforceable they must be a genuine pre-estimate of loss, not a penalty.
Example
The contract sets liquidated damages of RM2,000 per day of late completion, capped at 10% of value.
Related terms
- Performance Bond — A guarantee that a supplier will fulfil its contractual obligations, giving the buyer financial recourse if it fails.
- Service Credit — A pre-agreed rebate the supplier gives the buyer when it fails to meet an SLA target.
- Breach of Contract — A failure by one party to perform an obligation under a contract without a lawful excuse.
- Contract — A legally binding agreement between buyer and supplier setting out what will be supplied, at what price and on what terms.
Frequently Asked Questions
What is Liquidated Damages?
A contractually fixed sum payable by a supplier for a specified breach, agreed in advance as a genuine estimate of the buyer's loss. Liquidated damages (LDs) avoid litigating actual loss: the amount is set in the contract, commonly for late delivery or completion. To be enforceable they must be a genuine pre-estimate of loss, not a penalty.
Can you give an example of Liquidated Damages?
The contract sets liquidated damages of RM2,000 per day of late completion, capped at 10% of value.
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