Liquidated damages in subcontracts: caps, rates and how to push back
What are liquidated damages?
Liquidated damages — LDs — are a pre-agreed amount you pay the builder for every day (or week) you finish late. Instead of the builder having to prove what your delay actually cost, the contract fixes the number in advance, and it's deducted from what you're owed.
That pre-agreement cuts both ways. Done fairly, LDs give you certainty: you know exactly what a week of delay costs, and the builder can't inflate the damage after the fact. Done unfairly, they're a mechanism for transferring the head contract's delay exposure onto the subcontractor least able to carry it.
What should I look for in the LD clause?
Three things decide whether an LD clause is commercial or dangerous:
- The rate. Is the daily or weekly figure proportionate to your subcontract sum — or is it a flow-down of the head contract LD rate the builder faces on the whole project? A subcontractor on a small package carrying project-level LD rates is the classic trap.
- The cap. Is total LD liability capped — commonly as a percentage of the subcontract sum? Uncapped LDs are a dealbreaker flag: with no cap, a long delay can consume your entire margin and keep going.
- The trigger and relief. LDs run from the date for practical completion — so the extension of time clause is the other half of this bargain. If the EOT clause makes relief hard to get (short notice time bars, narrow qualifying causes, builder discretion), the LD clause is more dangerous than its rate suggests.
What's a reasonable position to negotiate?
Positions commonly seen in Australian subcontracting — the benchmarks SubSync reviews against:
- A capped aggregate liability for LDs, typically expressed as a percentage of the subcontract sum. The exact number is commercial and varies by trade and project — the point is that a cap exists and you priced the job knowing it.
- A rate that reflects your package, not the head contract. If the builder insists on flowing down project-level rates, that's a pricing conversation, not a clause to absorb silently.
- LDs as the exclusive remedy for delay, so you don't face LDs and general delay damages for the same late days.
- A workable EOT clause — realistic notice periods and qualifying causes that include the delays you don't control. An EOT granted is an LD avoided; the two clauses must be read together. (This is also where notice discipline pays: a missed EOT notice under a time-bar clause can forfeit relief entirely. SubSync's contract notices module exists for exactly this.)
Can I push back after signing?
Realistically, no. Once signed, the LD regime is the deal. Builders will occasionally negotiate relief on a live project for relationship reasons, but you have no entitlement — the leverage all sits before execution. That's why the review-and-departure process matters: flag the clause, propose the amendment in a departure schedule, and get the position agreed in writing before you start.
This is the workflow SubSync automates: upload the subcontract, get the LD and EOT clauses risk-rated with the industry position beside them, and send the departure schedule to the builder — before the contract is signed.
Are LDs a penalty? Can they be struck down?
Australian courts will refuse to enforce an LD clause that is a penalty — a sum "out of all proportion" to the greatest loss the builder could conceivably suffer. But the penalties doctrine is a narrow, expensive argument to run after the fact, and modern LD clauses are usually drafted to survive it. Treat the doctrine as a last resort for a dispute lawyer, not a reason to accept a bad clause. The cheap protection is the one you negotiate before signing.
The two-minute checklist
- Is there a daily/weekly LD rate, and is it proportionate to your subcontract sum?
- Is there an aggregate cap on LDs? If not, that's a red flag worth a conversation.
- Are LDs the exclusive remedy for delay?
- Does the EOT clause give you a realistic path to relief — and what does its notice time bar require of you?
- Have you priced the job on the LD regime as drafted, not as you hope it will be applied?
LDs are one line on a longer pre-signing list — the rest is in our subcontract review checklist. If you'd rather not do that with a highlighter at 9pm, upload the subcontract and SubSync will flag the LD, EOT and time-bar clauses in plain English — free for your first review.