The standard tool is a liquidated damages clause. It sets a fixed amount, usually a percentage of the order value for each week of delay, up to an agreed cap. It gives the supplier a reason to keep to the date and saves you proving your actual loss.
The clause only helps if the date it measures against is clear and both sides agree what counts as delivery. Most disputes about delay are really disputes about the start date or the definition of complete.
A clause that looks like a punishment rather than a genuine estimate of loss may not be enforceable in some legal systems. Have a lawyer in your chosen jurisdiction check the wording.
What the clause should contain
- The delivery date should be precise, with the event it refers to, such as passed factory test, ready for dispatch or on board the vessel.
- The rate should be a stated percentage of the order value, or of the delayed part, for each full or part week.
- A grace period, if you agree one, should be short and written down.
- A cap should limit the total, and the contract should say what happens when the cap is reached, such as a right to terminate.
- The method of recovery should be stated, such as deduction from the next payment or a call on a bank guarantee.
Fair exceptions
Suppliers will ask for exceptions, and some are fair. Delay caused by your late approval of drawings, late payment of a milestone or changes to the specification should extend the date. Define how long each extension is.
Make the supplier give early notice. A clause that requires written notice of any expected delay, with the cause and a recovery plan, lets you adjust installation and site work. Silence until the delivery date should not be an option.
Force majeure should cover genuine events outside either party's control. Keep the list specific and require prompt written notice. Avoid wording that lets ordinary problems, such as a late component supplier, excuse delay.
Make delay visible early
Penalties are a last resort. You gain more from catching delay early. Ask for a production schedule with milestones, such as casting received, machining finished, assembly and trial, and have them checked. Regular visits show whether the machine on the floor matches the reported progress.
Penalty clauses work alongside payment terms. If your balance depends on a passed factory test, the supplier already has a reason to finish. Our guides to the safest machinery payment terms and what an engineering purchase contract should include cover the rest of the contract.
Next step
We supervise production against the agreed milestones and report progress with photographs, so you see delay before it becomes a dispute. To set this up, book a free sourcing review.