A balanced, mutual starting point that reflects the market postures above.
Replace the bracketed business terms and take advice for the transaction and the governing law.
Per-day delay damages. If Supplier does not achieve [Milestone] by [date], Supplier shall pay Customer [amount] for each calendar day from the day after that date until Supplier achieves [Milestone]. The parties agree that the daily amount is an estimate of the cost Customer expects to carry during a delay, covering [extended project administration, supervision, and inspection], and the parties have recorded that estimate in the memorandum they exchanged on [date]. Calendar days include weekends and public holidays. Damages under this section stop accruing on the day Supplier achieves [Milestone], and shall not exceed [amount] or [number] days in the aggregate. Customer shall not assess damages under this section and under [other delay provision] for the same day of delay. Payment of these damages is Customer's sole and exclusive remedy for Supplier's failure to achieve [Milestone] by the date stated above, and does not limit Customer's remedies for any other breach.
Service credit. Supplier will make the Service available for at least [99.9] percent of the minutes in each calendar month, excluding maintenance windows Supplier notifies at least [10] days in advance. If availability falls below [99.9] percent, Customer receives a credit of [10] percent of the monthly fees for [the Service / the affected Service component]; if it falls below [99.0] percent, Customer receives [25] percent of those fees. Credits in any month shall not exceed [50] percent of those fees. Customer must request a credit within [60] days after the end of the affected month. The credit applies against any damages Customer proves for that month's availability shortfall, and does not limit Customer's remedies for any other breach.
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These counts come from three published sources and one Aline census, and each one states its own denominator. The California and New York figures count clauses that a party challenged in court and on which the court ruled on enforceability, so they describe litigated clauses and cannot tell you what share of liquidated damages clauses in general would survive a challenge. The dollar-per-day figures come from public highway and bridge construction specifications, not commercial contracts.
The line between an enforceable liquidated damages clause and an unenforceable penalty decides whether the clause does anything at all.
The stated amount bears no reasonable relationship to the loss the parties could have anticipated. A court then reads the clause as a penalty, refuses to enforce it, and leaves you to prove actual damages, which is the work the clause existed to avoid.
The clause recites that the amount is a fair and reasonable estimate and is not a penalty, and nothing else supports the number. Recitals of that kind carried no significant weight in the California and New York decisions studied, and courts found penalties despite them. Keep the estimate and the working behind it, not only the sentence.
You cannot calculate the amount from the clause. In one California case a provision setting a minimum of ten thousand dollars per breach failed for vagueness and lack of mutual assent, without the court reaching the penalty question. State an amount or a formula that produces one.
The clause claims the liquidated amount and actual damages for the same breach. The only commercial-lease holdover clause struck down in the study failed for that reason. Decide whether the amount replaces proven damages, credits against them, or sits on top of them, and write the answer down.
The structure exists to compel performance. Clauses that raised the principal owed on default failed in all but one instance in the study, and residential-lease liquidated damages were struck down in every case in it. Courts read an arbitrary amount as coercion.
The number looks defensible in hindsight rather than at signing. New York interprets the provision as of the date the parties made the agreement, and California measures reasonableness under the circumstances existing at that time. Build the estimate before you sign.
Two provisions charge damages for the same day of delay. Caltrans and Michigan both state in terms that the department does not assess damages for a work part and for the whole work at the same time. Copy that sentence.
| Issue | Market posture | Reasonable fallback | Push back hard |
|---|---|---|---|
| Payment carve-out | Payment obligations excluded from force majeure | Short grace period for banking-system failure only | Any clause that lets the counterparty stop paying during an event |
| Event list | Enumerated list plus "including, without limitation" | Enumerated plus a catch-all tied to reasonable control | A closed "limited to" list, which leaves you litigating the gap |
| Epidemic | Expressly named after 2020 (most clauses still do not) | "Public health emergency declared by a competent authority" | Silence; courts split on whether "act of God" reaches COVID |
| Notice | Prompt written notice with a workable window | Prompt notice, no fixed day count | Notice as a condition precedent on a 48-hour fuse |
| Termination trigger | Either-party right after a prolonged event (public median 90 days) | A longer trigger, either party | Indefinite suspension with no termination right |
| Economic hardship | Expressly excluded | Silence | "Material adverse change in market conditions," a repricing right in disguise |
A liquidated damages clause fixes the damages payable for a defined breach in advance, so the injured party does not have to prove actual loss after the breach. A court enforces it only if the amount was a reasonable measure of the loss the parties could anticipate.
Restatement (Second) of Contracts section 356 allows liquidated damages at an amount that is reasonable in light of the anticipated or actual loss and the difficulty of proving loss, and treats an unreasonably large amount as an unenforceable penalty. For a sale of goods, UCC section 2-718 adds a third factor, the inconvenience of obtaining an adequate remedy another way.
Purpose and proportion decide it, not wording. An amount that compensates a loss the parties could anticipate is enforceable. An amount whose function is to compel performance, and which lacks proportional relation to the loss that may flow from the breach, is a penalty and a court will not enforce it.
California and New York courts both read the substance of the provision rather than its label, so calling the clause liquidated damages does not settle the question. New York judges the provision as of the date the parties made the agreement, and California measures reasonableness under the circumstances existing at that time.
No reliable figure exists, and any percentage you see should make you suspicious. The published counts come from clauses that a party challenged in court, and a party who expects a court to enforce a clause does not litigate it, so those counts describe litigation rather than drafting.
Within that limit, and from the leading study: of 59 challenged clauses California courts ruled on between May 2008 and August 2019, 25 were refused enforcement, and of 66 challenged clauses New York courts ruled on between February 2013 and September 2019, 42 were held to be unenforceable penalties. Neither figure tells you what share of liquidated damages clauses in general would survive a challenge.
No. Language reciting that the amount is a reasonable estimate and not a penalty carried no significant weight in the California and New York decisions studied, and courts found penalties despite that wording.
The recital remains standard practice and can support a result a court reaches on other grounds, so keep it. Put the effort into the estimate behind the number and the record that supports it.
That depends on the state and the contract type. California Civil Code section 1671 splits the test: under subdivision (d), a clause in a consumer goods or services contract or a residential lease is presumptively void and survives only if fixing actual damages was impracticable or extremely difficult, while under subdivision (b) a clause in any other contract is presumptively valid unless the challenger shows it was unreasonable under the circumstances existing when the parties made the contract.
New York has no liquidated damages statute and presumes validity, putting the burden on the party contesting the clause. The presumption can decide the case: in 5 of the California decisions studied neither side carried its burden, and the clause was enforced.
No market-standard amount exists for commercial contracts. The only public registers of liquidated damages amounts are government construction schedules: of 51 state transportation department standard specification documents, 35 set delay damages with a published dollar-per-day table keyed to the original contract amount.
Among the 7 schedules Aline read that publish a calendar-day rate, the amount for an 18 million dollar highway contract runs from 2,300 dollars in Ohio to 6,805 dollars in Pennsylvania. Those rates are calibrated to a public agency's own delay costs on public-works construction and do not transfer to a commercial deal.
Two figures that circulate online, nine to eleven percent of purchase price as enforceable and sixty percent as a penalty, are holdings in individual real-estate cases rather than distributions, so treat neither as a benchmark.
Only if the contract says so, and drafting practice splits by market. In 13 of 16 published cloud and SaaS service level agreements Aline read, the service credit is the customer's sole or exclusive remedy for missing the availability commitment.
Public-works construction runs the other way: 23 CFR 635.127 treats the scheduled rate as a minimum, Texas adds road user cost on top of its table, and Florida preserves recovery of third-party damages in addition to the scheduled amount.
Decide which model you want, because claiming the liquidated amount and actual damages for the same breach can defeat the clause. The one commercial-lease holdover clause struck down in the California and New York study failed for that reason.
A service credit does the same job as a liquidated damages clause: it fixes what the customer gets for a defined failure without proof of loss. In the published cloud service level agreements Aline read, the credit is the customer's sole or exclusive remedy in 13 of 16 documents, and it is calculated against the fees for the affected service, region, or resource rather than the whole bill.
Maximum credits in those 16 agreements run from 10 percent of affected-service fees at Twilio to 100 percent at AWS, Microsoft, Oracle, and Google Compute Engine, and every agreement requires the customer to claim within a stated window, from 15 days at Atlassian to two billing cycles at AWS. A court may or may not characterize a credit as liquidated damages, which is a question of governing law that this census does not answer.
The clause does not apply and you fall back on proving your actual damages under ordinary contract principles, which is the outcome the clause existed to avoid.
Restatement (Second) of Contracts section 356 treats an unreasonably large liquidated amount as unenforceable on public policy grounds, and UCC section 2-718 calls such a term void as a penalty for sale-of-goods contracts. Some states will reform or partly enforce rather than strike the whole provision, and that varies by state.
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