What Are Liquidated And Consequential Damages And How Do They Affect Your Contract?

Alex BarthetContracts

What are liquidated and consequential damages and how do they affect your contract?

  • Liquidated damages are the amount of money that should be paid for every day a job is late
  • Consequential damages are damages that occur because of someone’s failure to do what he/she contracted to do.

Our Miami construction law firm was helping out a client who was building a medical facility and a surgical center. He came to us a little late in the process. He had already signed a standard AIA contract and had hired a consultant. The project was behind schedule, two months behind schedule, and as a result our client wasn’t able to perform scheduled surgeries in his new surgical center, resulting in plenty of lost revenue.

We review the contract and notice that a section at the beginning of the contract listing liquidated damages (the amount of money per day or per week that he would be paid for every day that the job was late) was left blank. The contract is a standard AIA contract so it includes what is called a waiver of consequential damages, meaning both parties, the contractor and the owner waive their right to seek damages against the other party beyond the direct losses in the contract. The damages waived includes loss of use, financing costs and lost profits as far as the owner is concerned. So, now we have a problem. We have a contract that says the contractor is not assessed any material delay damages under the liquidated damage clause because it was left blank and our client, the owner, has waived his right to consequential damages which would be all of his lost profits.

When you sign a construction contract with a contractor, understand that if the job is late, there should be damages to you. What are you going to do to recoup those damages in case of that loss? You have two choices.

List Liquidated damages in your contract: This is an amount of money you fix early on in the process to be paid for every day that the job was late.

Preserve your right to seek damages for lost profits, loss of use and financing charges: These damages are significant and you want to be able to recover them if the job is late especially when you have no fault on your part for the delay.