A guide to liquidated damages in the HIA contract
Written By Annelyse Stead | Australian Home Building & Renovation Contract Specialist | M. Construction Law | B.Construction Management
Think the hardest thing about building delays is the wait? Actually, it's the hidden costs.
You've signed your building contract. Construction is about to start on your dream home. Everything seems locked in.
But what happens when your builder misses the completion date by three months? Six months? Longer?
Most homeowners focus on getting a fixed-price contract and a beautiful design. But they completely miss one of the most important financial protections hiding in their HIA contract: liquidated damages.
Here's why this matters: In Australia, the average cost of building delays is around $4,600 per month. That's extra rent, ongoing loan interest, storage fees, and the stress of your life being on hold.
The good news? Your contract already has a mechanism to protect you from these costs. You just need to know how to use it properly.
1. What liquidated damages actually mean (and why most people get them wrong)
Liquidated damages (LDs) aren't penalties. They're not about punishing your builder for being late.
Think of them more like an insurance policy baked into your contract. When you specify a daily rate for liquidated damages in your HIA Building Contract, you're agreeing upfront on what fair compensation looks like if the project runs overtime.
The Housing Industry Association (HIA) Building Contract includes a liquidated damages clause that allows you to claim compensation if your builder doesn't complete the project within the agreed timeframe.
But here's the catch: These damages are only enforceable if they reflect genuine financial losses.
You can't just pick a random number that sounds good. The courts have consistently ruled that liquidated damages must be a reasonable pre-estimate of your actual loss. If you set the amount too high without justification, it could be deemed a penalty and become unenforceable.
This is why getting your calculation right from the start is absolutely critical.
2. How to calculate your liquidated damages rate (the right way)
Your HIA contract requires you to specify a daily rate for liquidated damages in the contract's "Particulars" section. This needs to happen before you sign.
Here's what you need to factor into your calculation:
Ongoing costs during delays
Loan interest: Any increased interest payments on your construction loan due to the extended timeframe
Additional rent: Extra rent payments if you're renting while waiting for your home to be completed
Storage costs: Fees for storing your belongings during the delay
Temporary accommodation: Any costs associated with extended stays in temporary housing
Loss of rental income: If you planned to rent the property, calculate the income you're missing out on
Additional professional fees: Extended project management, consultancy, or other service fees
Let's look at a real example:
Sarah and James signed a contract for a new home build in Victoria with an expected completion date 10 months away. They calculated their potential delay costs:
Total weekly cost: $1,150
Daily rate: $164
By documenting these genuine costs and including a daily rate of $164 in their contract particulars, Sarah and James protected themselves financially. When their builder ran three months over schedule, they were able to claim $14,760 in liquidated damages — money that covered their actual out-of-pocket expenses during the delay.
If you're unsure about how to determine the right daily rate for your situation, I offer a Liquidated Damages Calculator for my contract review clients, which helps you calculate your daily rate and ensures your LDs reflect actual, defensible costs.
3. The three strategies that actually prevent building delays
While liquidated damages are your financial safety net, the best outcome is avoiding delays altogether. Here's what actually works:
Strategy 1: Lock in a specific start date (not a window)
Most builders will propose a start date "window" — something like "we'll commence between March and May."
This is a red flag.
Push for a specific start date in your contract. If the builder genuinely can't commit to an exact date, at least negotiate the shortest possible window and include consequences for late starts.
Strategy 2: Have the "materials conversation" before you sign
Supply chain disruptions have become the norm, not the exception.
Before signing your contract, ask your builder:
Which materials have the longest lead times?
Have these materials already been ordered or locked in?
What's the backup plan if key materials become unavailable?
Can you approve alternative specifications now to avoid delays later?
One of my clients, Michael, avoided a four-month delay by having this conversation upfront. When his preferred tiles showed a 10-month lead time, he approved an Australian alternative before construction started.
Strategy 3: Build communication checkpoints into your contract
The best way to catch delays before they cascade is regular, structured communication. I recommend including a clause in your contract that requires:
Weekly progress updates during active construction
A formal meeting every two weeks to review the schedule
Written notice within 48 hours if any delay is anticipated
This isn't about micromanaging your builder. It's about creating accountability and early warning systems that benefit both parties.
4. When delays happen: How to actually enforce liquidated damages
You've done everything right. You calculated your LDs carefully, included them in your contract, and construction has begun.
But now your builder has missed the completion date. What happens next?
Here's the reality: Most builders won't simply hand over liquidated damages payments without a process.
Your enforcement process
Document the delay: Keep detailed records of the scheduled completion date versus the actual completion date
Check for extension of time (EOT) claims: Review whether your builder has validly claimed any time extensions due to weather, variations you requested, or other factors outlined in your contract
Calculate the total owing: Multiply your daily LD rate by the number of days of delay (minus any valid EOT days)
Make a formal written claim: Send a letter to your builder requesting payment of liquidated damages, citing the specific contract clause and showing your calculations
The key is having your documentation ready: your contract with the LD clause clearly specified, evidence of your genuine costs, and a clear record of the delay timeline.
The bottom line on building delays and your money
Your building contract is a legal document worth hundreds of thousands of dollars. Treating liquidated damages as an afterthought — or worse, leaving them blank — is like buying comprehensive insurance but forgetting to specify the coverage amount.
The average delay cost of $4,600 per month adds up fast. But with properly calculated liquidated damages and preventative strategies in place, you can protect yourself financially and keep your builder accountable to the agreed schedule.
How I help homeowners protect themselves from building delays
Understanding liquidated damages is just one piece of building with confidence. In my Building Contract Health Check, we review your entire HIA or Master Builders contract together to identify risks, calculate your liquidated damages rate properly, and build in the protections you need.
I've reviewed over 200 building contracts for clients across Victoria, ACT, Queensland, New South Wales, Tasmania, Western Australia, and the Northern Territory. My clients walk away understanding exactly what they're signing, what to watch out for, and how to communicate effectively with their builder throughout the process.
We cover everything from liquidated damages calculation to variation procedures, payment schedules, and your rights when things go wrong.
My goal is simple: I want you to sign your contract with complete confidence.
We'll go through any questions you have — how to avoid delays, what to watch out for, how to keep costs within your original building quote, and how to protect your biggest investment.
If you're someone who wants to understand the details, wants education on what makes a strong contract, and wants to know exactly what you're agreeing to before you sign — then a Building Contract Health Check with me is the right fit.
Thanks for reading, and I'll see you in my next post!
Annelyse
Construction Management | M. Construction Law
Follow me @_buildtogether for daily tips on building and renovation contracts.
