What are liquidated damages in a construction contract?

Liquidated damages in a construction contract refer to the pre-determined amounts that a contractor agrees to pay the owner if the project is not completed by the specified deadline. This concept is vital in construction agreements because it provides a clear, agreed-upon financial consequence for failing to meet deadlines, which helps to motivate timely project completion and minimize disputes over delays.

When contracts include liquidated damages, they typically outline the specific amount that will be owed for each day or week of delay beyond the agreed-upon completion date. This arrangement is beneficial for both parties; it compensates the owner for potential losses due to delays and establishes a clear framework for accountability and expectations.

In contrast, the other options pertain to different aspects of contractual agreements. Refunds for overpayment relate to financial adjustments based on payment discrepancies. Extra charges for additional work address situations where the scope of work exceeds what was originally agreed upon, often requiring an adjustment to the contract price. Monetary incentives for early completion offer rewards for completing the project ahead of schedule but do not constitute a penalty for delays. Therefore, the correct choice focuses on the agreed-upon penalties for late completion, aligning perfectly with the definition of liquidated damages.