If the prime contractor is five days late in substantially completing their work, they owe the owner ,000.
The owner usually deducts the ,000 from a payment to the contractor. What I do see often though are disputes over liquidated damages.
If the liquidated damages do not meet this test, then they could be deemed an unenforceable penalty by a court or administrative contract appeals board.
Liquidated damages are a fixed amount set forth in a contract by an agency to compensate the agency for unexcused delay in the performance of the contract.
The purpose of the liquidated damages clause is to establish, in advance, a reasonable estimate of the damages that would be incurred by the agency if there is an unexcused delay, or a breach of contract, which causes the work to be extended beyond the contractual completion date.
Liquidated damages are used to compensate the Government for probable damages.
Therefore, the liquidated damages rate must be a reasonable forecast of just compensation for the harm that is caused by late delivery or untimely performance of the particular contract.