What is the function of "liquidated damages" in a construction contract?

The correct response highlights that liquidated damages serve as a predetermined penalty outlined in the construction contract for delays in project completion. This mechanism is put in place to protect the project owner from the potential financial repercussions that result from late delivery. Essentially, if the contractor fails to complete their work by the agreed deadline, they are liable to pay a set amount per day of delay as compensation.

This approach benefits owners by providing clarity on the consequences of delays, enabling them to estimate potential losses in advance. It also encourages contractors to adhere to timelines, ensuring that projects remain on schedule.

While some of the other options may touch on related concepts, they do not specifically define the role of liquidated damages within the context of a construction contract. The focus on penalties for delays directly addresses the contractual nature and intent behind liquidated damages.