Contracting parties of an administrative construction contract can foresee how a type of uncertainty could be removed by agreeing a specific consequence for a breach. They can address this by incorporating, “inter alia”, a “Liquidated Damages Clause” to that effect. Liquidated damages is a fixed sum agreed by the parties in their contract as a value of the damages that one party can claim against the other, without the need to proof that sustained damage when they enter into contract. It is believed that liquidated damages doctrine is used widely in common law jurisdictions. Nowadays, however, the doctrine has received a welcoming arm in administrative construction contracts in the civil law countries including Ethiopia. But, whether a liquidated damages is a contractual or legal remedy; whether a liquidated damages and penalty are similar and interchangeable or different in concept; can an employer seeks liquidation damages together with other available general remedies after canceling such contract; and who, contracting parties or a government, in agreement or by law, can figure out amount of liquidated damages and its calculation mechanism are unsolved conundrum in Ethiopian pertaining laws and its application in courts there off. Qualitative research design was preferred due to its suitability for addressing the research questions of the study and its high level of flexibility; relevant data has been collected under an “umbrella” of qualitative data collection techniques, mainly involving document analysis and interview. Both doctrinal and empirical approaches were simultaneously utilized. The finding indicates that liquidated damages are a contract based remedy, not legal remedy; penalty and liquidated damages are not similar concepts. Penalty is a payment of money stipulated as “in terrorem” of the offending party while liquidated damages is a pre-agreed sum payable as damages for a party's breach of such contract. However, laws and courts in Ethiopia have assimilated liquidated damages with penalty vaguely; in principle liquidated damages is an exhaustive remedy but parties, based on unique features of any single construction project, can agree otherwise. Liquidated damages can be claimed not only for delayed performance but also any breach of an administrative construction contract according to provisions of such contract; and they are contracting parties through their contract, not a government by law who measures liquidated damages. Courts in Ethiopia are recommended to have common sympathetic about liquidated damages, and pertaining laws should be amended. Key Words: Administrative contract, Construction, Liquidated damages, Penalty, Performance