Penalty clause and liquidated damages in construction contracts

The subject of this study is to explain the differences between the penalty clauses and liquidated damages clauses in construction contracts. The penalty clause is widely used in the Continental European legal system, on te other hand, the penalty clause applications are not accepted in the Anglo-American legal systems. The penalty cause is regulated in Articles 179 - 182 of the Turkish Code of Obligations numbered 6098. Although the definition of the penalty clause is not included in the TCC, it can be defined as an act with economic value that the contractor undertakes to pay to the owner in case the contract is not performed fully or properly by the contractor. Liquidated damage, on the other hand, has not been regulated in Turkish legal system. This liquidated damage is applied in the Continental European legal system as a result of its widespread use in the Anglo-American legal system. Liquidated damage can be defined as the predetermination of the amount of compensation to be paid to compensate the damage suffered by the owner in case the contract is not performed at fully or properly by the contractor. Penalty clause and liquidated damage differ in terms of purpose, conditions of claimability, burden of proof, provisions to be applied and their limits.