Should I waive the consequential damages provision?

Q: Why should I ask my client to waive consequential damages, as suggested in some of the standard industry documents?

A:  Deleting a provision that waives consequential or special damages increases your risk, perhaps substantially. The mutual waiver A201-1997 General Conditions of the Contract for Construction found in AIA documents, exists to help protect you against an imbalance between project risk and reward.

Q: What are “consequential damages?

According to AIA Contracts Documents, Consequential damages are “indirect expenses” or “expectation damages” connected to the alleged breach and can be significantly disproportionate to your fee or many times the cost of repairing the actual damage. Consequential damages can generally be awarded if they were reasonably foreseeable when the parties entered into the contract. That will be a question for the judge or jury to determine.

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The Risk Specialty Group and RLI Design Professionals are pleased to feature our Contract Tip series.  We’ll review a question submitted by a design firm relating to the subject of contracts.  Keep in mind, though, that these discussions are general in nature and in making specific business decisions, it’s important to review your options with a knowledgeable attorney.