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Liquidated damages refers to

a contractual provision under which the parties agree to a stipulated amount of damages to be paid by a party for a breach of that agreement.

Uniform Commercial Code[]

Under Section 2-718(1) of the Uniform Commercial Code (U.C.C.), "damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty."

U.S. government contracting[]

Liquidated damages is

[c]ompensation to the government for damages that result from the contractor failing to deliver supplies or perform services.[1]

Sample contract clause[]

If [Party #1] breaches the foregoing obligation [describe obligation], [Party #1] shall pay to [Party #2] as liquidated damages the sum of [amount]. The parties agree that the amount stated as liquidated damages is reasonable under the circumstances existing at the time that this agreement was executed.


  1. NIST Special Publication 800-4, App. D, Glossary.