Determining consequential damages can be difficult

| Sep 18, 2020 | Real estate disputes |

Anyone who has been to a large construction site will likely recall many workers all doing different tasks to achieve a common goal. Whether it is architects on the site reading blueprints, contractors building the foundation or trucks delivering materials, there are many moving parts. All this work is controlled by a construction contract that outlines responsibilities, quality expectations, deadlines, and other essential details.

The complexity of the project and the number of personnel involved make it challenging work, but it can all come to a stop if one company does not fulfill its obligations, thus committing a breach of the contract.  Some breaches are relatively straightforward to fix if the work is redone or the proper materials arrive. Others have a cascading effect on the project that makes it difficult to recover from. It can lead to lawsuits over the incurred damages.

What are consequential damages?

There are two types of damages when the construction contract is breached. There are direct damages that pay for fixing the work. Consequential (or indirect) damages are more open to interpretation. A waiver may limit them in the contract for foreseeable issues recognized from the outset:

  • Delays can lead to the owner not having use of the property when planned, thus potentially losing rental income.
  • Contractors can claim that they lost business opportunities because they could not finish the job on time and move onto the next one.
  • Builders could say the building site’s problems damaged their reputation, impacting the likelihood of getting hired for other projects.

Proving an actual amount of damages in cases like this can be difficult, and the courts will not award damages without reasonable certainty.

Liquidated damages

The building contract may also have a liquidated damages clause, which has predetermined amounts for not fulfilling the contract. They can help keep the project moving, but they need to specific and often have a sliding scale that depends on the size of the breach, such as days past a deadline.

Effective contracts protect business interests

Consequential damages are just one example of why it is vital to work with an experienced construction law attorney. They can protect the client’s interests by proving consequential damages in court. They can also draft a contract with actionable liquidated damages clauses or advise a client on a contract with unreasonable deadlines or clauses.