Liquidated damages are the contract's answer to the question "what happens if it is late". A rate is written into the contract before anybody starts, expressed per day or per week, and if the works are not complete by the agreed date the employer may deduct it.
The word that carries the weight is liquidated: the figure is fixed in advance, so neither party has to prove actual loss when the time comes. That is the whole point of the clause. It converts an argument about consequences into a calculation.
Why the rate has to be honest
A liquidated damages rate is meant to be a genuine pre-estimate of the loss the employer would suffer from late completion. On a house that is typically the cost of continuing to rent elsewhere, plus financing costs on money already spent. On a commercial building it is lost rent.
A rate set far above any plausible loss, chosen to punish rather than to compensate, risks being unenforceable as a penalty. Whether a particular rate crosses that line is a legal question that depends on the circumstances and on the applicable law, and it is one to put to an advocate rather than resolve from a formula. The practical guidance is simpler: be able to show how the figure was arrived at. A rate derived from real rent and real financing cost is defensible. A round number chosen because it sounded serious is not.
What stops the clock
Liquidated damages accrue from the completion date until practical completion. Two things interrupt that.
An extension of time. Where a delay is caused by something the contract makes the employer's responsibility, such as late information, a variation, or in many contracts certain neutral events, the completion date is extended and damages accrue only from the new date.
Practical completion itself. The meter stops on the day the certificate says.
This is why extensions of time matter so much on a final account. They are not administrative. Each one moves the date from which damages run, and on a contract with a meaningful daily rate that is real money.
A worked example
Completion date 1 June. Liquidated damages KES 12,000 per day.
Practical completion is certified on 12 August, seventy-two days late.
Along the way the employer instructed a variation that added eighteen days, and an extension of time for eighteen days was granted in writing at the time.
Damages: 72 minus 18, so 54 days at KES 12,000, which is KES 648,000, deducted from sums otherwise due.
Note what made that calculation possible. The extension was granted in writing, at the time. On a build where delays were discussed and never formally granted or refused, that same calculation is the opening position of a negotiation rather than a result.
What goes wrong
No extensions of time were ever formally decided. The commonest and most expensive failure. Every delay is arguable at the end, and the argument is conducted without evidence.
Damages are deducted without following the contract's procedure. Many contracts require a certificate of non-completion, or a written notice, before any deduction. Deducting without it can make the deduction itself a breach.
The rate was never filled in. A contract with a blank in the liquidated damages clause does not give the employer an open-ended claim. It usually means there is no liquidated damages mechanism at all, and the employer is left proving actual loss the hard way.