Liquidated damages is the pre-determined amount of compensation you have to pay the client if you finish the project late (i.e if you do not finish the project within the contract period).
Usually, liquidated damages are set at:
* the amount of rent being paid by the owner to live away from the site; or
* the amount of rent that the owner could get if the premises were leased.
Here are some tips:
1. Never cross out the part of the contract that specifies the amount of liquidated damages, as this is your way of ‘capping’ your liability
2. Never write “$0” as liquidated damages (same reason as above)
3. Try and keep liquidated damages as low as possible – even “$1 per week” is fine
4. If the owner insists on having substantial liquidated damages, then you also negotiate the same amount being paid to you as a bonus is you complete the project earlier than the date of practical completion