Liquidated damages are a contractual remedy the Postal Service may use when there are delays in delivery or performance. Liquidated damages are based on an estimate of daily losses that would result directly from a delay in delivery or performance. Generally, liquidated damages are included in all construction contracts.
It is important to remember that providing for liquidated damages usually increases the contract price as suppliers typically factor them into their pricing; therefore, their use should be carefully considered. Liquidated damages may not be used as a penalty for failure to deliver or perform on time. The use of liquidated damages should be included in contracts only when:
The rate of liquidated damages must represent the best estimate of the actual daily damages that will result from delay in delivery or performance. A rate lower than the actual estimated rate may be used to avoid excessive price contingencies in proposals. The contracting officer must determine and document in each case that the rate is reasonable and not punitive. The rate should, at a minimum, cover the estimated cost of inspection and supervision for each day of delay. Whenever the Postal Service will suffer other specific damages due to a supplier’s delay, the rate should also include an amount for these damages. Examples of specific damages are:
If appropriate to reflect the probable damages, considering that the Postal Service may terminate for default or take other action, the assessment of liquidated damages may be in two or more increments with a declining rate as the delay continues. To prevent an unreasonable assessment of liquidated damages, the contract may also include an overall maximum dollar amount, a period of time during which liquidated damages may be assessed, or both.
Whenever liquidated damages will be assessed for a supplier’s delay, the contract must include Clause 2-10: Liquidated Damages, modified as necessary.
