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Waiver of Consequential Damages in Construction Contracts

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The waiver of consequential damages is a common provision in construction contracts, influencing the rights and remedies available to parties involved. Consequential damages refer to indirect or special losses that result from a breach of contract but are not a direct consequence of the breach itself. While such waivers can benefit both parties, they also present certain advantages and disadvantages.

One primary advantage of including a waiver of consequential damages is risk mitigation. By limiting potential liabilities, contractors can better manage their exposure to unforeseen events or disruptions that might lead to indirect losses. This clarity promotes a more predictable and stable contractual relationship between the parties.

On the flip side, the disadvantage lies in the potential injustice to the non-breaching party. If a breach occurs, and the waiver of consequential damages is in place, the injured party may only recover direct losses, which might not fully compensate for the overall impact of the breach. This lack of comprehensive compensation could create an imbalance in the risk allocation between the parties.

Ultimately, the decision to include a waiver of consequential damages in a construction contract requires careful consideration of the specific risks involved, the project’s nature, and the overall negotiating power of the parties. Striking the right balance between protecting against potential losses and ensuring fairness is crucial for a successful contractual relationship in the construction industry.

If you are an owner, developer, and/or a contractor and have questions about a waiver of consequential damages provision in a construction contract, please feel free to give us a call at 214-432-4684.