What are consequential damages?

On Behalf of | Feb 3, 2021 | Real Estate Law |

Construction projects are complicated regardless of whether it is a multi-use building or a single-family house. By the time occupants move in, there have been several other parties involved in the building process. It includes the owners, contractors, subcontractors, suppliers, architects, and others. These interconnected partnerships use contracts covering the work done, costs, deadlines, materials, services, and other necessary details.

Breaches are common

On paper, these agreements sum up to a harmonious whole, but building projects seldom go exactly as planned in the real world. It can mean a breach of contract, which is grounds for damages. There are direct damages, such as owing money, repairing a mistake, replacing faulty materials, or errors that add to the cost. While direct damages are relatively straightforward, indirect or consequential damages are not. Examples of consequential damages include:

  • Faulty materials or designs cause delays, meaning the owner can’t lease out space when they planned to. Thus, they lose potential income.
  • Contractors or subcontractors claim that errors or delays prevented them from doing their job in the allotted time and budget. It can mean that they either lost out on other subsequent jobs or their reputation was harmed by doing deficient work or missing deadlines, which impacts their ability to secure new jobs.
  • The breach led to a loss of bonding or a higher cost for bonding.

Damages can be controlled

To mitigate the potential for lawsuits or damages, the contracts will also include waivers. These reduce the risks involved in taking on a complicated project and ideally lead to more competitive bids for the jobs. There may be liquidated damages that outline specific amounts for common causes of delays, such as an amount per day for delays. These terms should be reasonable, perhaps using a capped percentage of the contract. They should also be project-specific.

Contracts protect businesses

Consequential damages are one example of how partners hold each other accountable. Whether it is in court or through arbitration, businesses can also protect their interests by using an experienced construction law attorney when drafting and before signing an agreement. These legal professionals can identify unfair terms, thus avoiding unreasonable deadlines or legal exposure that may lead to claims of consequential damages.