Construction projects are complicated, whether it is an addition to a home or building a multi-use high-rise building. In a perfect world, owners, contractors, suppliers, architects and others involved in the project work in harmony to perfectly execute a plan outlined in contracts that detail deadlines, work done, pay, services, and goods. Reality is different, and delays, mistakes, acts of God, and faulty products all lead to delays, which mean consequential damages.
Breaches cause damages
Breaches occur when one party does not meet the conditions of the contract. Direct damages will often include a party not paying a bill, fixing a mistake in the construction work or materials, or adding additional cost to a project. These damages are easy to document and identify. Indirect or consequential damages are much harder to determine. The plaintiff must successfully argue that the damages were foreseeable when drafting the agreement, and the breach led to damages and loss of money.
Some examples of consequential damages include:
- The breach led to a loss of bonding or its expense.
- The owner seeks compensation because construction delays prevented tenants from moving in, causing a loss of rental income.
- Subcontractors cannot get other jobs because delays tied them up longer than expected or damaged their reputation.
Controlling the cost of damages
Binding agreements need to be fair, so parties will insert waivers in the contract limiting their financial exposure. Without these conditions, the owner or developer may have difficulty finding someone to take on the job or make bids more competitive. Liquidated damages are another option – this lists a certain amount in penalties for being late with deliverables.
Contracts can protect your interests
Signing contracts is a way of life in construction. It holds parties accountable if there is a breach, but those who sign should understand the terms and deem that they are fair and viable. Before signing is the time to talk to someone who understands construction contracts if they aren’t sure or worry about consequential damages.