Every energy build is worried about delays, but engineering, procurement, and construction (EPC) projects face more timeline and performance pressure than most. If you miss an important milestone, you’re dealing with more than lost revenue from the delay; you’re dealing with liquidated damages.
Liquidated damages are several headaches wrapped into one. They hurt your project margins and damage client relationships. If you get into enough trouble with them, they can trigger payment disputes, contract termination, or exclusion from future bids.
But liquidated damages aren't inevitable. Understanding what triggers them gives EPCs the control to avoid or minimize these costly penalties.
This guide covers how liquidated damages work in EPC contracts, the most common triggers in renewable energy projects like yours, and the practical steps you can take to protect your margins and your reputation.
Understanding liquidated damages in EPC contracts
Let’s start with the basics: what exactly are liquidated damages? These damages are predetermined dollar amounts written into EPC contracts that the contractor owes the owner when specific obligations aren’t met.
There are two main types of liquidated damages that show up in EPC work:
- Delay liquidated damages: These damages are daily or weekly charges for late completion. The rates vary by project scale, but $50,000 to $500,000 per day isn't uncommon.
- Performance liquidated damages: The other category is penalties for failing to meet guaranteed output, efficiency, or quality metrics. The owner collects liquidated damages for each MW of shortfall.
For example, if an EPC firm is constructing a solar project and equipment fails during commissioning testing, the project will be delayed by a few weeks or months while troubleshooting, ordering replacement parts, and installing them. Each day past the contractual commercial operation date costs $100,000 in liquidated damages. By the time the issue is resolved and final acceptance happens, $3.5 million has evaporated.
The purpose of liquidated damages is to eliminate ambiguity in the build process. Instead of the owner proving actual losses in court after a breach, both parties agree upfront on what delays or underperformance will cost. That certainty is helpful for both parties, but the financial impact is real for EPCs.
Liquidated damages eat into profit margins and can trigger payment disputes, withholding, or even contract termination. Understanding these fundamentals helps EPCs spot exposure points early and negotiate terms that reflect actual project risk.
Strategic approaches to minimize liquidated damages
We know what liquidated damages are and the most common triggers for them. Now, let’s take a look at some of the methods you can use to minimize liquidated damages and keep projects on track.
1. Negotiate realistic timelines and performance terms upfront
The best time to avoid liquidated damages is before you sign the contract, and the best way to accomplish this is by setting realistic terms upfront.
Start with historical project data. Use your project history and industry benchmarks to set completion dates that reflect industry realities rather than optimistic estimates. You also want to avoid agreeing to timelines that leave no room for delays. Equipment delays, permit hold-ups, and inclement weather all cause things to take longer than expected. Protect yourself by building contingency buffers into your schedule and contract.
Next, clarify force majeure and excusable delay provisions. Your contract should allow some extensions for when things like extreme weather or utility delays pop up, as these are beyond your control. Our best tip here is to get specific. Generic force majeure language often doesn't hold up when you need it.
Finally, cap your liability for liquidated damages. Negotiate maximum amounts as a percentage of the contract value, but don’t stop there. You’ll also want to push for a single aggregate cap across all types of liquidated damages to avoid compounding issues if your project meets more than one qualifier.
2. Lock in a reliable equipment supplier and partner
Long-lead equipment, such as transformers, switchboards, and substations, is consistently the bottleneck that throws projects off schedule.
Traditionally, you’re dealing with 20-26+ week lead times for switchboards, six months for custom transformers and substations. You also have to coordinate with half a dozen different suppliers, which multiplies the number of potential delay points; if one vendor slips, your whole schedule slips.
What you need instead is a single accountable OEM partner that supplies both transformers and switchboards. Most competitors specialize in one or the other, forcing you to coordinate between multiple vendors. Giga delivers both through a single source, eliminating that coordination burden entirely.
By controlling our entire supply chain for transformers and switchboards, we reduce liquidated damages risk, simplify procurement, and shorten lead times. When you know your critical electrical infrastructure will show up in 18 weeks instead of "somewhere between 20 and 30," you can hold a realistic schedule. You're not scrambling to find alternate suppliers at markup prices to avoid liquidated damages. The equipment shows up when it's supposed to, and your project stays on track.
3. Implement proactive project monitoring systems
Liquidated damages don’t tend to pop up out of nowhere. Instead, they accumulate over time as small delays compound into big ones, but that only happens if no one catches them early enough to course-correct.
Here are a few practical strategies you can use to catch problems early:
- Coordinate weekly with equipment suppliers: Don't wait for delivery dates to touch base with your suppliers. Maintain active communication to catch delays when you can still adjust.
- Implement rolling punch lists: Address defects and commissioning issues progressively throughout construction, not all at the end. The idea is to catch a small error during installation, when you can fix it in a day, rather than during commissioning, when you’re looking at a week or more of rework.
- Use commissioning software to start system testing in phases: The last thing you want is to discover integration issues between your cooling system and power distribution during final acceptance testing. Test incrementally, fix incrementally, and reduce the risk of last-minute failures.
4. Establish clear communication and documentation protocols
Transparency is the best way to reduce disputes between EPCs and owners. Regular progress reporting with daily logs, milestone updates, and photo documentation keeps owners in the loop. When they can see progress over time, they’re more likely to trust you and less likely to assume delays are your fault.
- Document excusable delays immediately: The minute an owner-caused delay, utility issue, or force majeure event occurs, log it with supporting evidence. If you wait until liquidated damages are on the table to start building your defense, you've already lost credibility.
- Engage the owner proactively when delays appear inevitable: Nobody likes bad news, but owners like surprise liquidated damages claims even less. Early notification gives you room to negotiate potential extensions. Late notification looks like you're trying to hide problems.
You can use documentation as your defense. If the owner tries to impose penalties for delays you didn't cause, your well-maintained records are what will win the dispute.
Related read: Five Ways Sourcing Switchboards Is Broken
How Giga helps EPCs reduce liquidated damages risk
We built Giga because we've lived the pain of fragmented supply chains and unaccountable vendors.
Our founders were operators first. They were welding modular data centers in East Texas in 2019, then hitting every bottleneck the broken energy infrastructure market could throw at them. Long lead time transformers. Vendors who disappeared after delivery. Equipment that showed up late or didn't perform. They built Giga to fix that experience.
- Vertical integration: Giga owns site development, infrastructure manufacturing, and operations. We're not coordinating 5-7 vendors to deliver your electrical package. We're one accountable partner controlling the full stack, cutting out the confusion and finger-pointing that causes delays and triggers liquidated damages.
- Industry-leading lead times: We offer transformers, switchboards, and full site builds in record time. Rather than struggling with cascading delays, we control the whole supply chain, allowing us to stick to the lead times we quote.
- Single point of accountability from spec to site: When an issue surfaces during commissioning, you're not trying to figure out which vendor is responsible. You call Giga. We own it, we fix it, and your project keeps moving.
- Hands-on technical support throughout the project lifecycle: Our engineering resources are available when you need them. Instead of struggling with phone trees and generic service lines, you get a personalized partner with responsive, boots-on-the-ground field support.
- Proven track record in renewable and infrastructure projects: Giga boasts more than 3.5 GW of transformers and switchboards. We're experienced at delivering the critical equipment that keeps projects on schedule, and we can help you get what you need for your renewable energy project.
Giga understands the penalty structures EPCs face. We engineer solutions to keep projects on track because we know what delays cost you. When critical electrical infrastructure arrives on time, performs as specified, and comes with responsive support, you face fewer liquidated damages triggers.
Avoiding liquidated damages starts with the right infrastructure partner
Liquidated damages can hurt your project margins, trigger disputes, and damage long-term client relationships. They’re costly, but not unavoidable.
To defend against liquidated damages, you need to take a three-part defense:
- Negotiate realistic contract terms that account for supply chain challenges
- Partner with reliable, fast-turnaround equipment suppliers like Giga Energy
- Implement proactive project controls and transparent communication policies
Giga is a hands-on energy infrastructure company built to remove the equipment bottlenecks that tend to trigger delays and performance liquidated damages. With our full vertical integration, we deliver best-in-industry lead times and one accountable partner from spec to site. Instead of waiting on third parties and outsourced technical support, you always know who to call if an issue arises.
Ready to minimize your risk of liquidated damages? Giga delivers transformers and switchboards with industry-leading lead times and hands-on engineering support. Build a quote or contact our team to discuss how we can help your next EPC project stay on schedule.