Partial liquidated damages: Overview, definition, and example
What are partial liquidated damages?
Partial liquidated damages refer to a predetermined amount that one party must pay if they fail to meet part of their contractual obligations, rather than the full penalty for complete non-performance. This approach allows for a proportionate remedy, ensuring compensation aligns with the actual level of non-compliance.
For example, in a supply contract, if a vendor delivers only 80% of the agreed goods on time, they may owe partial liquidated damages based on the percentage of undelivered items, rather than the full penalty for total non-delivery.
Why are partial liquidated damages important?
They provide a fair and predictable way to handle minor breaches without imposing excessive penalties. This ensures that businesses can enforce accountability while maintaining flexibility in cases of partial performance.
For the party paying damages, it reduces financial risk, as they are not penalized for minor shortfalls as harshly as they would be for complete failure. For the receiving party, it ensures they are compensated in proportion to the level of non-performance.
Understanding partial liquidated damages through an example
Imagine a contractor is hired to build 10 retail kiosks by a set deadline, with a liquidated damages clause stating that late delivery results in a penalty of $1,000 per kiosk. If the contractor delivers 8 kiosks on time but is late on the remaining 2, they would pay $2,000 in partial liquidated damages, rather than the full penalty for non-delivery of all 10 kiosks.
In another scenario, a software vendor agrees to develop a system with five key features by a deadline, with liquidated damages set at $5,000 per missing feature. If only four features are delivered on time, the client can claim $5,000 for the missing feature, rather than a full penalty for late completion of the entire system.
An example of a partial liquidated damages clause
Here’s how a clause like this might appear in a contract:
“If the Supplier fails to deliver the Goods or Services as specified in this Agreement, liquidated damages shall apply on a pro-rata basis, calculated at [$Amount] per undelivered unit or incomplete service milestone.”
Conclusion
Partial liquidated damages ensure that penalties for non-performance are proportional to the level of breach, rather than imposing an all-or-nothing approach. This provides fairness to both parties—protecting the receiving party’s interests while preventing excessive financial burdens on the paying party.
Including a clear partial liquidated damages clause can help businesses manage risk, encourage compliance, and provide a structured approach to resolving partial failures in contract performance.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.