What is the difference between liquidated damages and penalty?

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A. Liquidated damages should represent the owner's most realistic forecast of what the actual damages are likely to be (but which may be difficult to prove) for each day's late delivery. Liquidated damages are not intended to be a penalty for late completion. In fact, if the court construes LDs to be a penalty they will not enforce the LD clause. There is a discussion of liquidated damages in the Best Practices Procurement Manual (BPPM) section 8.2.3 - Liquidated Damages. Q. If the Liquidated Damages clause was a part of the original solicitation, can it be deleted on a contract modification? My federal experience is that Liquidated Damages cannot be waived at the local level. A. The old FTA Circular 4220.1E, paragraph 13 - Liquidated Damages Provisions, gave FTA a legal right to funds collected pursuant to the Liquidated Damages clause. A similar provision exists in current FTA Circular 4220.1F. All such funds recovered are to be credited to the grant, thus reducing the Federal ... more
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