[Code of Federal Regulations]
[Title 48, Volume 1]
[Revised as of October 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 48CFR11.501]

[Page 180]
 
            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM
 
                CHAPTER 1--FEDERAL ACQUISITION REGULATION
 
PART 11_DESCRIBING AGENCY NEEDS--Table of Contents
 
                     Subpart 11.5_Liquidated Damages
 
Sec.  11.501  Policy.

    (a) The contracting officer must consider the potential impact on 
pricing, competition, and contract administration before using a 
liquidated damages clause. 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). Liquidated damages are used to 
compensate the Government for probable damages. Therefore, the 
liquidated damages rate must be a reasonable forecast of just 
compensation for the harm that is caused by late delivery or untimely 
performance of the particular contract. Use a maximum amount or a 
maximum period for assessing liquidated damages if these limits reflect 
the maximum probable damage to the Government. Also, the contracting 
officer may use more than one liquidated damages rate when the 
contracting officer expects the probable damage to the Government to 
change over the contract period of performance.
    (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). Prompt contracting officer 
action will prevent excessive loss to defaulting contractors and protect 
the interests of the Government.
    (d) The head of the agency may reduce or waive the amount of 
liquidated damages assessed under a contract, if the Commissioner, 
Financial Management Service, or designee approves (see Treasury Order 
145-10).