United States
Hong KongLiquidated damages and substantial completion
Liquidated damages are a pre-agreed daily sum for late completion, enforceable only as a genuine estimate of loss rather than a penalty. Substantial completion is the point at which they normally stop running.
Two connected concepts, and the connection is the point: one starts a clock and the other stops it.
Liquidated damages
A sum stated in the contract, payable per day of delay beyond the completion date.
The purpose is to avoid arguing about actual loss. Both parties agree in advance what a day of delay is worth.
A liquidated damages clause is enforceable where the sum was a genuine pre-estimate of the loss delay would cause. A figure set punitively, far beyond any conceivable loss, may be unenforceable as a penalty. That distinction is asked directly.
Substantial completion
The point at which the work is sufficiently complete for the owner to occupy or use it for its intended purpose.
Not perfect. Not punch-list free. Usable for what it was built for.
What that date triggers
- Liquidated damages normally stop running
- Warranty periods usually begin
- Retainage is often reduced
- Risk of loss commonly transfers to the owner
- The owner takes on insurance and utilities
A great deal hangs on one date, which is why its determination is so often disputed.
Excusable delay
Where a delay is excusable, the completion date moves and liquidated damages do not run for that period.
That is why notice provisions matter. A delay that would have been excusable becomes your cost if you did not give notice in time.
Common questions
What are liquidated damages?
A pre-agreed daily sum payable for late completion, avoiding an argument about actual loss.
Can they be any amount?
No. They must be a genuine pre-estimate of loss. A punitive figure may be unenforceable as a penalty.
What is substantial completion?
The point at which the owner can occupy or use the work for its intended purpose.
What does substantial completion trigger?
Liquidated damages usually stop, warranties begin, retainage is often reduced and risk commonly transfers.
How does an excusable delay affect it?
The completion date moves, so liquidated damages do not run for that period, provided notice was given.