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Why you need to address consequential damages in your contract

On Behalf of | May 28, 2024 | Construction Litigation

The losses caused by a construction delay or defect can be astronomical. How those losses are covered is going to depend on the terms of the contract that you executed with the construction company. Nowadays, it’s become increasingly common for these contracts to include a waiver of consequential damages, which could severely hinder your ability to recoup what you need and likely deserve. That’s why before signing off on a construction contract you should try to negotiate and fight against a waiver of consequential damages.

What are consequential damages?

Consequential damages are those losses that stem from a construction delay or defect. But these losses aren’t limited to those that are direct in nature. Instead, they capture all losses that flow from the issue at hand. For example, if a contractor improperly performs work on your roof, thereby leading to a leak and a flood in your house, then your consequential damages may include the cost to repair the roof; expenses related to replacing carpet, furniture, and other damaged household items; and even a stay at a hotel if one is necessary while the damage caused to your home is repaired.

If you don’t have a consequential damages provision in your contract, then you might be on the hook for covering these losses, which can be overwhelming and financially crushing.

How to negotiate for a consequential damages provision

The construction company might push a boilerplate contract your way that contains a waiver of these damages. Don’t just blindly sign off on it. Instead, reach out to the construction company to see if they’re receptive to negotiation on this point. If they’re not, then you might want to continue to shop around to see if you can find a contactor or company that’s willing to work with you.

Although most contractors and construction companies will be hesitant to include a consequential damages provision, you might be able to get them to move from their position a little bit by doing the following:

  • Suggest a consequential damages cap: As you can see from the example above, consequential damages can rack up fast when something goes wrong. That leaves construction companies on edge. You might be able to alleviate their concerns to a certain extent while still protecting your interests by capping the amount of payable consequential damages in the event that something goes wrong.
  • Consider a mutual consequential damages provision: Sure, you have a lot to lose if the construction project goes sideways, but the company with which you’re working has a lot to lose, too, if you change plans in a way that leads to delay. This can cost them other business and income. Therefore, they might be receptive to a mutual consequential damages provision that protects both parties.
  • Negotiate liquated damages: Liquidated damages provided for in a contract specify a specific dollar amount that’s to be paid if a project isn’t completed on time or if something else goes awry. If you can’t get a consequential damages provision in the contract, then you might be able to negotiate the terms of this provision so that they’re more favorable to you and give you some extra protection.

Know how to protect your interests in construction litigation

There’s a lot at stake when you’re embroiled in a construction dispute. But you might be able to protect your interests on the front end by securing a favorable contract. But these matters are highly technical and can become conflictual. So, if you need help navigating your circumstances, then be sure to secure any help that may be necessary to adequately protect your interests.