What is the difference between Liquidated Damages and Performance Bonds?
A. Liquidated Damages (LDs) are a specific sum of money stipulated by the contracting parties as the amount to be recovered for each day of delay in delivery or completion of the project. They do represent the owner’s actual damages but are established in the contract as a substitute for actual damages. They should represent the most realistic forecast possible of what the actual damages are likely to be. They are widely used in construction contracts and sometimes in supply and service contracts. For more information, see the Best Practices Procurement Manual (BPPM) Section 8.2.3 Liquidated Damages. LDs are normally capped in the contract; i.e., there is a maximum amount stipulated in the contract that may be assessed against the contractor for late delivery. In the event of contractor default the owner will complete the project with another contractor and assess the added cost beyond the original contract amount to the defaulting contractor. A Performance Bond is a binding promise fr
