Due to all the variables involved, it is almost guaranteed that a construction project will not go exactly as planned. When this happens, some amount of damage is caused and (barring natural disasters) it is quite certain that someone holds the blame. Damages clauses within a construction contract help to manage these occurrences by providing a limit on recovery or eliminating certain liability from either party altogether.
Damage limitations clauses do not provide protection for a party of the contract that acts unfairly or in bad faith. In this type of scenario, the other party to the contract may have the right to recover compensation for damages resulting from the actions of the other party despite the presence of a damages provision in the contract.
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. Below, we’ll briefly discuss each clause in detail.
Liquidated Damages Clause
The Liquidated Damages Clause, also known as ascertained damages, is a provision that involves a breach of contract. This provision is designed to provide “reasonable” compensation to the non-breaching party for damages that are not readily ascertainable. If the designated amount to be awarded is considered to be unreasonable, the provision may not be enforced.
In other terms, this means that in the event of a breach of contract, when the non-breaching party’s actual damages are too difficult to determine, a predetermined amount will be paid in place of the actual damages amount. If the non-breaching party contributed to the breach, the non-breaching party is not permitted to assess the liquidated damages for the delay days they contributed to.
Mutual Waiver of Consequential Damages Clause
Typically upheld by the courts, the Mutual Waiver of Damages Clause is a provision that addresses specific types of damages claims and limitations of liability of those particular claims for both parties involved in a contract. The American Institute of Architects (AIA) provides two standardized lists of specific types of damages to be waived for both the owner and the contractor.
The AIA 201-1997 waives the contractor from claims for loss of rent, use, income, profit, financing, business and reputation. It also waives the owner from claims for office expenses, loss of financing, business, reputation, and profit. Because these lists are designed to offset each other, each party must waive damages that are equivalent in nature and fair to the other party. However, a poorly drafted clause may shift more risk to one party or the other. To ensure that your Mutual Waiver of Consequential Damages Clause is fair and balanced, contact a Tampa construction attorney for advice.
No Damages for Delay Clause
The No Damages for Delay Clause is a provision that is typically placed into a contract between an owner and a general contractor or general contractor and sub-contractor, which protects one of the parties to a contract from liability of damages caused by a delay of the project that they would otherwise incur. The provision states that the injured party cannot recover compensation from the other party for damages they suffer.
However, if a delay is due to one party’s misconduct or intentional interference, the provision is likely not to be upheld in Court and the other party to the contract may have the right to recover monetary compensation for the delay.
Laws pertaining to damages clauses vary among states and jurisdictions. In the State of Florida, to ensure that your contract provides proper protection for you and your construction business, it is highly recommended to seek the help of an experienced construction attorney in Tampa, FL.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.