This is one of the most heavily negotiated issues I deal with in my contract review practice. They are: – Seeking compensation for actual and provable damages, – Pursuing a liquidated damages clause in the original contract. By David A. Senter of Nexsen PruetPublished August 10, 2020One of the biggest risks contractors and subcontractors face on construction projects is liability for consequential damages, although many of them may not even know about that risk, much less understand it. An example of consequential damages would be a driver getting into a car accident because, instead of paying attention to the road, he was focused on another car accident that had just happened across the street. – Consequential damages are also a form of compensation. However, the risk is there and can be a silent killer. Consequential damages, otherwise known as special damages, are damages that can be proven to have occurred because of the failure of one party to meet a contractual obligation, a breach of contract. A waiver of consequential damages is contained in many construction contracts. Consequential damages are damages which flow indirectly from a breach of contract and are typically related to delays in performance and delays in completion of a project. .2 damages incurred by the Contractor for principal office expenses including the compensation of personnel stationed there, for losses of financing, business and reputation, and for loss of profit, except anticipated profit arising directly from the Work. The most obvious and common subject of these clauses is the so-called “act of God” delay, which a contracting party has no ability to control, avoid, or foresee. Every contractor and subcontractor should consider and evaluate the risk of consequential damages on each project. Consequential damages are damages which flow indirectly from a breach of contract and are typically related to delays in performance and delays in completion of a project. are also a form of compensation. Perini was late in completing the project and while Perini’s initial fee on the project was only about $600,000, it was hit with an adverse award of $14.5 million in consequential damages arising from the casino’s lost revenues due to the late completion. However, LDs cannot be so severe as to constitute a penalty because a penalty would be unenforceable. Here is a favorite clause of mine which excludes such damages: There are several nuanced modifications that can be made to this language such as agreeing to liability for such damages “only to the extent covered by insurance.” This change broadens liability for consequential damages but perhaps not the risk as any claim would be covered by insurance. All rights reserved. These clauses can save time and money by assigning a specific dollar value for each day that passes between the substantial completion date of the contract and the date that the contractor or subcontractor finishes the job. While liquidated damages and consequential damages are two of the most common issues negotiated in construction contracts, they are most often misunderstood. Construction contracts include liquidated damages clauses because actual consequential damages can be difficult to quantify. There are two ways in which a project owner or construction professional can recover consequential damages. PwC 3 Exclusive remedies, liquidated damages, the Prevention Principle, consequential loss and implied warranties Introduction This paper sets out the legal principles that apply to key provisions in EPC Contracts, and focuses on those issues that Contractors raise in an attempt to limit their liability. Liquidated Damages (LD’s) Examples include lost profits, reduced value of a piece of real estate, and lost bonding capacity. Three types of damages clauses that are commonly used in construction contracts are the Liquidated Damages Clause, Mutual Waiver of Consequential Damages Clause, and the No Damages for Delay Clause. The American Institute of Architects (AIA), for example, has included a mutual waiver of consequential damages between the owner and contractor since at least 1997 and continues to do so today. If the project is not completed on time, the owner will lose the benefit of that revenue and the contractor and responsible subcontractors can face liability for that loss of revenue, i.e., consequential damages. Contractual waivers of consequential damages have become widespread throughout the construction industry. It is typically on a party’s list of most important clauses that may require approvals at board level if certain requirements are not met. Consequential damages are damages which flow indirectly from a breach of contract and are typically related to delays in performance and delays in completion of a project. They must be both foreseeable and directly connected to the breach of contract. How do you evaluate those risks?The risk of consequential damages and LDs generally relates to the failure to complete a project or achieve a milestone on time. What I have found interesting over the last several months is that contractors, surety brokers and even surety … They must be both foreseeable and directly connected to the breach of contract. Damages in construction contracts - Designing Buildings Wiki - Share your construction industry knowledge. They are recoverable in New York unless their award is precluded in the contract. A waiver of consequential damages is often mutual, applicable to both owner and contractor. Unless the consequences are capped, they have the potential to put a construction professional out of business. If you have questions about how a consequential damage clause can affect your livelihood, reach out to the construction law team at Rosen Law LLC. NASBP Coronavirus (COVID-19) Resource & Information Center, Position Briefs / Advocacy Reference Library, Perini Corporation v. Greate Bay Hotel & Casino. To protect against this sort of post-completion consequential damages risk, and other risks, be sure to include waiver of consequential damages language even if the contract has an LD provision. When it comes to construction contracts, contractors, owners, and even designers should be apprehensive about the prospect of consequential damages, because those damages can include lost bonding capacity, financing costs, and possibly extended overhead costs. But what does such a waiver mean and is it a good thing for contractors … These will typically be waived in favor of liquidated damages for the benefit of the owner, and exclude any lost profits in favor of the contractor. 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