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What are consequential and liquidated damages?

On Behalf of | Oct 16, 2020 | Construction Disputes |

Construction projects often look like a hive of activity. Architects are reading blueprints, cement contractors pouring the foundation and trucks delivering materials are all working toward completing the project. These specialized roles are controlled by construction contracts that outline deadlines, responsibilities, quality expectations, and other essential details.

However, it can be slowed or stopped if one company or subcontractor breaches their contract by not meeting their obligations. Some breaches have obvious solutions, like redoing the work or finding the proper materials. Other answers are less clear but have a cascading impact. In either case, it can mean a potential lawsuit involving damages.

What are consequential damages?

There are two common types of damages in a breach. There are direct damages that involve extra labor and materials to resolve the breach. Less obvious are consequential damages, which are indirect damages that are foreseeable but more open to interpretation. Examples include:

  • The owner or developer claims lost income because of delays in finishing the building and generating rental income.
  • Contractors can claim they lost subsequent work because of delays on the job.
  • Subcontractors may argue that a project riddled with breaches damages their reputation and hurt their chances of getting other jobs.

Proving actual amounts of indirect damages can be difficult, and courts likely will not award damages unless there is reasonable proof of financial losses. Nevertheless, waivers at the outset can address specific issues and potential lawsuits. Some may even require them before agreeing to the conditions of the job.

Liquidated damages

The building may also have a clause for liquidated damages – this is a predetermined amount (or a sliding scale accrued over time) for not meeting the contract’s conditions. These can help keep construction moving forward, but they need to be specific.

Contracts protect businesses

Deals are often sealed with a handshake, but contracts outline the agreement’s conditions. An experienced construction law attorney can work with clients to either draft an agreement or scrutinize the agreement before it is signed. Depending upon the client, they can recognize unreasonable conditions and ask for waivers or negotiate reasonable liquidated damages. Of course, they can also help determine a reasonable amount for consequential damages.