What are liquidated damages intended to address in contracts?

Liquidated damages in contracts are a pre-determined amount of money that one party agrees to pay the other if they fail to meet specific obligations within a set timeframe. This concept serves to provide a clear remedy in situations where actual damages would be difficult to quantify.

The intent behind liquidated damages is to address failures related to contract obligations, primarily when those obligations involve performance timelines or deliverable milestones. For example, if a contractor does not complete a project by the agreed date, the liquidated damages clause specifies a monetary penalty for each day of delay. This ensures that both parties have defined expectations and consequences, promoting accountability and potentially incentivizing timely performance.

The other options, while representing important aspects of contract management, do not directly relate to the concept of liquidated damages. Issues such as the failure to deliver financial reports, timeliness of subcontractor payments, or inadequacies in contract modifications do not encapsulate the primary function of liquidated damages compared to addressing the core obligation to perform per the contract terms.