What is intended by the term "liquidated damages" in a construction contract?

Liquidated damages in a construction contract refer to predetermined monetary penalties that are agreed upon by the parties involved for breaches of contract, specifically for delays in project completion. This concept allows the parties to establish a clear expectation of damages that would result from failure to meet specified deadlines.

In construction projects, time is often critical, and delays can lead to additional costs, loss of revenue, and other negative impacts. By setting liquidated damages upfront, the parties can avoid the difficulties of proving actual damages when a delay occurs. This arrangement provides a level of predictability and security for both the contractor and the client, as it outlines the financial consequences of not adhering to the project timeline.

The other options do not accurately capture the essence of liquidated damages: increased funding for unforeseen costs does not relate to penalties for delays, specifications for warranty claims deal with product guarantees rather than timeframes, and fees paid to subcontractors are routine payments within the contractual relationship, rather than penalties tied to project timelines.