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IT contracts
Liquidated damages are a sum fixed in advance that a supplier must pay if it breaches the contract in a stated way, usually by missing a go-live or milestone date. They matter for insurance because the client can claim them without proving any loss, while PI policies commonly pay only what you would have owed as ordinary damages anyway.
Part of: Professional indemnity for IT professionals
In short
Implementation and migration contracts often make the supplier pay a set amount for each day or week a milestone is late. The client does not have to prove its loss, and the supplier knows its maximum delay exposure. Since Cavendish v Makdessi [2015] UKSC 67, such a clause is struck down only if it imposes a detriment out of all proportion to the client’s legitimate interest in performance. Triple Point v PTT [2021] UKSC 29 held that liquidated damages run up to termination even if the work is never accepted; after that, general damages apply. PI wordings commonly exclude liquidated damages beyond the liability you would have had without the clause.
Last reviewed 7 October 2026 by the Apex professional indemnity team.
In Triple Point Technology v PTT [2021] UKSC 29, Lord Leggatt described a liquidated damages clause as one that fixes what will be payable for a breach “irrespective of what loss may actually be suffered”, most often for delay. He gave it two purposes (para 74):
In technology work the trigger is usually a date: go-live, completion of data migration, passing acceptance tests, or reaching a project milestone. The rate is commonly expressed per day or per week, sometimes as a percentage of the milestone charge, often with a ceiling.
The government’s Model Services Contract shows one standard approach. Clause 26 calls them Delay Payments, payable when a Key Milestone is not achieved by its date. They are the customer’s exclusive financial remedy for that failure, except where the customer is entitled to terminate or the delay runs beyond the Delay Deduction Period. If the customer caused the delay, the supplier can claim relief, but the Cabinet Office guidance notes the supplier must prove it.
English law will not enforce a penalty. In Cavendish Square Holding v Makdessi [2015] UKSC 67, the Supreme Court restated the rule:
Lord Hodge (para 255) added that for a clause fixing damages, an extravagant disproportion between the stated sum and the highest level of damages that could possibly arise would make it a penalty.
For an IT supplier, the practical message is that a delay rate agreed with a well-advised client is hard to escape. Arguing afterwards that the client lost less than the rate will rarely succeed on its own.
Triple Point was a software implementation dispute. The supplier missed milestones, the contract was terminated, and the work was never accepted. The Court of Appeal had held that no liquidated damages were due because the clause only bit on work that was eventually accepted.
The Supreme Court disagreed. Lady Arden (paras 35 to 37) said that reading was inconsistent with commercial reality. Parties are taken to know the general law: liquidated damages accrue up to termination, and after that the customer must claim general damages for breach. The customer’s accrued right does not simply disappear because the work was never finished.
What this means for an IT supplier:
PI insures your legal liability for breach of professional duty, subject to the policy terms. Liquidated damages are a liability you agreed to, and many arise from delay that involves no negligence at all. Wordings therefore commonly exclude them, or cover them only to the extent you would have been liable without the clause.
| Situation | How PI commonly responds |
|---|---|
| Delay caused by a negligent design or configuration error | May respond, but often only up to the damages you would have owed at law without the clause |
| Delay from under-resourcing, optimistic planning or a strict deadline with no fault | Usually not covered; there is no professional negligence |
| Delay rate higher than the client’s real loss | The excess over ordinary damages is commonly excluded |
| General damages after termination for negligent performance | The core of what PI is for, subject to the terms |
| Service credits during the run phase | Commonly treated like liquidated damages; see service credits and PI |
| Defence costs when a client claims delay payments and other losses together | May be covered for the insured part of the claim, subject to the terms |
Some technology PI wordings give wider contractual liability cover. Read yours rather than assume either way.
If this affects your business, these are the points a broker will ask about:
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They are a sum agreed in the contract that the supplier pays if it breaches in a stated way, typically missing a go-live or milestone date. The client recovers the agreed amount without proving its actual loss, and the supplier’s delay exposure is known in advance. Public sector contracts may call them delay payments.
Usually, yes. After Cavendish v Makdessi, a clause is an unenforceable penalty only if it imposes a detriment out of all proportion to the client’s legitimate interest in performance. Where well-advised parties of similar bargaining power negotiated the rate, courts start from a strong presumption that it is legitimate. The test is applied at the date of contract.
They stop accruing at termination but are not lost. In Triple Point v PTT the Supreme Court held that liquidated damages ran up to termination even though the work was never completed or accepted. After termination the client claims general damages for breach, assessed under the ordinary rules.
Commonly only in part. Many PI wordings exclude liquidated damages, or cover them only to the extent you would have been liable without the clause. Delay caused by a negligent error may be covered on that basis; delay without professional fault usually is not. Some technology wordings are wider, so check yours.
It depends on the drafting. In Triple Point the Supreme Court held that liquidated damages fell within the cap on the supplier’s liability. Some contracts place them inside the main cap, others give them their own ceiling. Check how the two interact before signing.
Send us the delay, liability and insurance clauses with your proposal and a broker will check how your PI wording would treat them. Or call 0117 325 0027.
Start your PI proposal Call 0117 325 0027Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales, company number 07014570. This page is general information, not advice on your individual circumstances. Cover is always subject to the insurer’s acceptance and the policy terms, and this page does not guarantee that cover will be available or on what terms.
