(c) The contracting officer must take all reasonable steps to mitigate liquidated damages.
If the contract contains a liquidated damages clause and the contracting officer is considering terminating the contract for default, the contracting officer should seek expeditiously to obtain performance by the contractor or terminate the contract and repurchase (see subpart 49.4).
Liquidated damages clauses act as insurance for both parties.
The person who breaks the contract knows ahead of time how much they would owe the other party.
When most breach of contracts cases occur, the damages that are awarded are based on the actual financial loss incurred by the party who suffered the breach. For example, if Joe is renting an apartment from Ann for 0 a month and then Joe breaks the lease and Ann can't find a new tenant for a month, then Ann has suffered 0 in damages and that would be what Joe has to pay.
Thus, it’s important that (1) your clause not in fact be a penalty provision and (2) the liquidated damages clause clearly reflect an attempt to compensate the non-breaching party. If the Hotel over-books, then, within 14 calendar days of the occurrence of the over-booking, the Hotel shall pay to the Customer as liquidated damages, and not as a penalty, an amount equal to 30% of the average Room Rate for each Guestroom Reservation that the Hotel is unable to accept prior to the Reservation Cut-off Date.
Use liquidated damages clauses only when— (1) The time of delivery or timely performance is so important that the Government may reasonably expect to suffer damage if the delivery or performance is delinquent; and (2) The extent or amount of such damage would be difficult or impossible to estimate accurately or prove.
(b) Liquidated damages are not punitive and are not negative performance incentives (see 16.402-2).
As such, the parties to the contract can decide on an amount that will need to be paid if either breaches and they can include details about that amount right in the contract.
The court will generally enforce the liquidated damages provision and make the breaching party pay whatever is specified, if it finds that a breach did, in fact, occur.