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Under Common Law, failing to make progress on a project is generally not a basis for the client establishing a claim for damages. LDs are a reasonable pre-estimate of the damage suffered by the client for the late delivery of a project. However, if the milestone is a staged handover of part of the project, then LDs can certainly be applied.
Example:
Milestone 1 - complete piling under wharf. LDs cannot be applied, the only work following on is the contractor completing the wharf deck.
Milestone 2 - Hand over container berth 1 for commissioning (project involves several berths). LDs can apply the handover allows the client to start work towards earning revenue.
Civil Law is a bit different, it allows the partie to a contract to pre-set damages for failing to achieve a contractual objective.
For more on LDs see: https://mosaicprojects.com.au/PMKI-ITC-020.php#Process1