A provision in a contract that provides for a reduction in payment to a contractor for failure to meet certain deadlines is known as?

A provision in a contract that reduces payment to a contractor for not meeting specific deadlines is referred to as a penalty clause. This type of clause serves as a deterrent, encouraging the contractor to adhere to the established timelines by imposing financial consequences for delays. The idea is to allocate risk and motivate performance; if the contractor is not able to deliver on time, they will face a reduction in payment, which is meant to compensate the other party for any inconvenience or losses incurred due to the delay.

The other options do not fit this definition. A reimbursement clause generally involves repaying costs under specific conditions, a performance bond is a surety bond ensuring project completion as per the contract terms, and a compensation cap limits the amount one party can claim under the contract, rather than imposing consequences for failing to meet deadlines. Thus, the penalty clause very specifically addresses the scenario described in the question.