Contracts generally include a clause making provision for the contractor to pay liquidated damages (LD, sometimes referred to as liquidated and ascertained damages - LADs) to the client in the event that the contract is breached. In building contracts, liquidated damages usually relate to the contractor failing to achieve practical completion (i.e. completing the works so they can handover the site to the client) by the completion date set out in the contract. They are often calculated on a daily or weekly rate.

Liquidated damages are not penalties, they are pre-determined damages set at the time that a contract is entered into, based on a calculation of the actual loss the client is likely to incur if the contractor fails to meet the completion date. They might include; rent on temporary accommodation, removal costs, extra running costs, and so on. They are generally set as a fixed daily or weekly sum, although there may be a more complicated formulae where the works are phased, where may be partial possession and so on. It is important that the method of calculation is precisely and formally documented.