LADs Explained — What They Are, How They Work, and How to Challenge Them

Liquidated and Ascertained Damages — universally known as LADs — are one of the most feared clauses in any construction subcontract. And for good reason. An unfair LAD clause, poorly understood, can turn a profitable job into a significant loss.

But LADs are also one of the most misunderstood clauses in construction contracts. Many subcontractors accept them without question, not realising that they have more room to negotiate and challenge than they think.

What are LADs?

Liquidated and Ascertained Damages are a pre-agreed rate of compensation that the main contractor can deduct from your payments if you fail to complete your works by the completion date. They're 'liquidated' because the amount is fixed in advance — rather than the main contractor having to prove their actual loss.

The theory behind LADs is sensible. Rather than going to court to prove the exact financial impact of a delay, the parties agree a reasonable rate in advance. It gives both sides certainty. The problem is when the rate isn't reasonable — when it's a penalty rather than a genuine estimate of loss.

How LADs Work Under a JCT Subcontract

• A completion date is agreed at the start of the contract
• If you fail to complete by that date, the main contractor can deduct LADs at the agreed rate for every week (or day) of delay
• LADs can only be applied after the main contractor has issued a notice of intention to deduct — this is a procedural requirement
• LADs are subject to a cap — usually expressed as a percentage of the contract sum
• If you're granted an extension of time, the completion date moves and LADs can only be applied from the new date

The Extension of Time Mechanism — Your Protection

The most important protection against unfair LADs is the extension of time mechanism. Under a JCT subcontract, you are entitled to an extension of time if delay is caused by certain events — called 'relevant events' — that are outside your control.

Standard relevant events include:

• Delays caused by the main contractor or other trades
• Late receipt of instructions or information from the main contractor
• Exceptionally adverse weather conditions
• Force majeure events
• Changes in statutory requirements

Can You Challenge a LAD Rate?

Yes — and this surprises many subcontractors. LADs must be a genuine pre-estimate of the main contractor's loss caused by your delay. They cannot be a penalty. If the rate is so high that it couldn't reasonably represent the actual loss, it may be legally unenforceable.

The law in this area was clarified by the Supreme Court in Cavendish Square v Makdessi (2015), which established that a clause is a penalty — and therefore unenforceable — if it imposes a detriment out of all proportion to any legitimate interest of the innocent party.

How to Protect Yourself Against Unfair LADs

Before You Sign

• Check the LAD rate — calculate your maximum exposure. LAD rate × maximum weeks of potential delay. Is this a risk your business can absorb?
• Check whether the rate is per week or per day — a £1,000/day LAD is very different from a £1,000/week LAD
• Check the relevant events clause — does it protect you against delays caused by the main contractor and other trades?
• Check the extension of time procedure — is it clearly defined? Is the time bar for notification reasonable?
• Check whether there's a cap on LADs — the JCT standard includes a cap, usually 10% of the contract sum

During the Contract

• Keep a programme and update it regularly — evidence of where you were on track is essential for extension of time claims
• Notify delay events promptly — most contracts have a time bar. Miss it and you may lose your right to an extension
• Document everything — correspondence, site diaries, programme updates, photographs
• Follow the contractual procedure for claiming an extension — a proper written claim is far more effective than a verbal request

If LADs Are Applied

• Check that the main contractor has followed the correct procedure — a valid pay-less notice must have been issued
• Assess whether you have grounds for an extension of time that would reduce or eliminate the LAD period
• Take advice — adjudication is available as a statutory right and is often the fastest route to resolving a LAD dispute

A Real-World Example

Consider a subcontractor on a £250,000 commercial fit-out contract with LADs of £2,500 per week and a 10% cap. Their maximum LAD exposure is £25,000.

Midway through the project, the main contractor's structural works overrun by three weeks, preventing the subcontractor from accessing their work area. The subcontractor finishes three weeks late as a result.

Without an extension of time, the main contractor attempts to deduct £7,500 in LADs. But because the delay was caused by the main contractor's own programme overrun — a relevant event — the subcontractor is entitled to a three-week extension. The LAD deduction falls away entirely.

The key was that the subcontractor had kept a programme, documented the access restriction, and issued an extension of time notice at the time the delay occurred. Without that documentation, the claim would have been much harder to pursue.