What is
Liquidated Damages?

How LDs work on UAE projects

The employer’s remedy for delay is usually mechanical: a daily or weekly rate, deducted from payments or called from security, without proof of loss. The contractor’s shield is the extension of time regime — every day of EOT granted is a day of LDs relieved. That is why delay claims and LD disputes are two sides of the same file.

Article 390: the adjustable penalty

Article 390(2) allows a court — and in practice arbitral tribunals applying UAE law — to vary agreed compensation to mirror actual loss, on either party’s application. A contractor facing LDs that dwarf any real damage can seek reduction; an employer whose true loss exceeds the cap can, in principle, seek more, though tribunals are slower to increase than to reduce. Evidence of actual loss therefore matters on both sides of the table, even where the clause was supposed to make it irrelevant.

Are liquidated damages enforceable in the UAE?

Yes — the starting point is that the agreed rate applies without proof of loss. But enforceability is not finality: the Article 390 adjustment power sits over every LD clause governed by UAE law, and no drafting excludes it. The practical effect is a rebuttable presumption in favour of the agreed figure.

Is there usually a cap?

Market practice caps delay damages at 5–10% of the contract price, commonly 10%. Once the cap is reached the employer’s remedy shifts: prolonged culpable delay beyond the cap typically grounds termination for default rather than further deduction.

Do LDs exclude other delay remedies?

Usually yes for delay itself — the clause is intended as the exhaustive delay remedy. But it does not absorb different breaches: defective work, failure to proceed, or abandonment carry their own consequences, and termination rights run alongside the LD regime once its thresholds are met.