Limiting Liability: Three Clauses to Consider in your Next Construction Contract

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The following clauses can limit your liability and maximize your profits.

June 25, 2019
Tara Lynch - Gordon & Rees Construction Law Blog

In your next contract, consider including some (or all!) of the following clauses to limit your liability and maximize your profits.

Waiver of Consequential Damages

While a proven breach of contract will leave a design professional or contractor exposed to direct or compensatory damages, a waiver of consequential damages will help “stop the bleeding” and protect the design professional or contractor from paying every damage that might flow from the breach. Consequential damages include those damages which indirectly flow from the breach of contract, for example, lost rents, lost profits, lost use, lost opportunity, loss of employee productivity, and damages to reputation.

The American Institute of Architects (AIA) has included a mutual waiver of consequential damages in its sample A201 for over 20 years. The AIA provision includes a definition of consequential damages which are waived, including many of the examples cited above. However, the AIA waiver of consequential damages clause carves out an exception for liquidated damages to the owner. Prudent design professionals and contractors will strike this exception so as not to render the clause meaningless. A well-drafted waiver clause will be mutual, will define which damages are consequential versus direct, and will not contain exceptions.

Ms. Lynch may be contacted at tlynch@grsm.com



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