Are liquidated damages calculated by formula or as a percentage of the contract sum enforceable?
A formula or percentage is not objectionable merely because it is not a fixed weekly amount. Enforceability depends on the obligation, the interests protected, the proportionality of the stipulated detriment and the contractual context when the rate was agreed.
Yes, provided the formula produces a proportionate remedy for the legitimate interests protected by the clause
The court does not reject a delay-damages clause simply because it uses a formula, a lending rate or a percentage of contract value. The employer should be able to explain why the chosen variables bear a rational relationship to the consequences and interests associated with late completion. A cap, sectional rates and a retained calculation record strengthen that explanation. An arbitrary percentage or one producing an extreme result remains vulnerable.
| Issue | Position |
|---|---|
| Formula or percentage | Permissible method, not an automatic penalty |
| Protected interest | Must be identified from the project context |
| Variables | Should have a rational connection with delay exposure |
| Resulting detriment | Must not be out of all proportion |
| Cap and sections | May control disproportionate outcomes |
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