In a construction contract it is not uncommon for consequential damages (also known as special damages) to be mentioned, or even asked to be waived. Understanding what consequential damages are will help you to determine what action to take in regard to a specific contract. It will also help you to know what legal rights you have in the event that you experience consequential damages or are sued because of them.
What are Consequential Damages?
Consequential damages are anything that costs money indirectly due to another party failing to meet their obligations on the project in question. In most cases, this would be due to the third party breaching their contract. In order to be considered consequential damages, they must be able to be linked to the action of another party in a reasonable way.
Examples of Consequential Damages
There are many ways that someone can experience consequential damages, and looking at examples can help to better understand what they are. The following are among the most common examples in the construction industry:
- Loss of Use – If a contractor starts a construction job, but then abandons the project, a property owner may be unable to use the property until a new contractor can be found.
- Increased Material Costs – When a supplier fails to meet their obligation to deliver necessary supplies to a job site. This may necessitate an immediate purchase of materials locally, which can increase the price significantly.
- Extended Rental Fees – It is often necessary to rent equipment to complete specific tasks for a job. If a third party doesn’t fulfil their responsibility, it may be necessary to rent the equipment for a longer period of time.
There are, of course, many other situations that can result in consequential damages. Any time that there are damages that are indirectly caused by an action or inaction, there may be a legal case possible.
Waiving Consequential DamagesIn some contracts there will be a section that waives the legal option for lawsuits related to consequential damages. There are situations where this can be a good option, but not always. For example, a contractor who is asked to sign this type of contract should also insist that the waiver is mutual so that they can’t be left on the hook should they become unable to complete a task. Some contracts try to ‘sneak’ this type of waiver in without discussion, which is why it is so important to ensure all contracts are fully read and understood prior to signing. Contact us to get the help you need with creating, reviewing, or agreeing to any type of contract.