In construction terms, what is 'liquidated damages'?

Liquidated damages refer to a predetermined amount of money that is specified in a contract as compensation for damages incurred by one party if the other fails to meet agreed-upon timelines or deadlines. This means that if a construction project is not completed on time, the contractor or party responsible for the delay agrees to pay a specific amount for each day that the project is late.

This concept is crucial in managing risk and ensuring accountability in construction contracts. It allows both parties to understand their obligations and the financial consequences of failing to meet deadlines upfront, thus minimizing disputes and providing clarity in the event of delays.

The other options, while related to different aspects of construction, don’t accurately define liquidated damages. For instance, penalty fees for poor workmanship address quality issues rather than timeline delays, compensation for poor material quality pertains to the use of unsuitable materials rather than completion delays, and fees associated with project modifications involve changes to the project scope rather than penalties for failing to meet the project's time requirements.