As used in project finance, a payment by a contractor to a project owner to reflect future cash flow losses resulting from the ongoing under-performance of a project caused by the contractor's failure to satisfy the technical and performance standards set out in the construction contract.

These liquidated damages are called buy-down liquidated damages because the owner of the project usually uses them to prepay the loans the owner incurred to finance the project to meet the debt service coverage ratio required to be maintained by the lenders to the project (see Practice Note, Understanding Project Finance Construction Contracts and Practice Note, Financial Covenants: Project Finance Transactions).