Category Archives: Contracts

Consequential Damages: What are they? Should I waive them? (law note)

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A client asked me about a contract he was asked to sign in which consequential damages were being waived.  Consequential damages are those things that cost money which arise indirectly out of a failure of a party on a construction project.   dollar signsThey can include:

  • loss of use
  • loss of rent
  • loss of profit
  • loss of bonding capacity
  • extended overhead
  • extended equipment rental fees
  • increased material costs
  • interest

Note that this is not an exhaustive list, and other consequential damages may be applicable depending on the project.

Often, like my client, you may be asked to waive consequential damages.  This is a double edged sword.  If the waiver is mutual (something on which you should insist), then the provision may save you money in the event your design or services delay the project.  The Owner has agreed that it cannot seek to recover indirect, consequential damages.  On the other hand, if you are the one suing the Owner, it means that there may be costs that you cannot be compensated for if a project goes awry.

The standard industry contracts all have at least some waiver of consequential damages, as noted in this chart.

waiver in form contractsBottom line: waiver of consequentials can be a good thing or a bad thing, but you will not know which when you are signing on the dotted line.

Just make sure that if there is a waiver, that it is mutual on both sides.  Good luck, and “be safe out there”

Your turn.  Have you ever waived your right to consequentials?  Horror story to share about paying someone else’s costs?  Share in the comment section.

Dollar Photo (c) sivlen001.
Chart (c) Melissa Brumback Creative Commons License

Need some HSW or PDH credit hours? Come here me speak in Chapel Hill on Wednesday!

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For my local readers, if you are looking to earn up to 7.0 HSW contact hours or  7.0 PDHs, come here me this Wednesday at the Halfmoon Seminar on Construction Law in Chapel Hill, North Carolina. 

 I’ll be speaking on “Making Changes and Resolving Disputes During the Construction Process“. 

changes construction sign

Other topics include:

  • Construction Contracting in Traditional and Alternative Project Delivery Systems
  • Entering into Construction Contracts and Subcontracts
  • Accessibility Review and Update
  • Ensuring Environmental Compliance During the Construction Process
  • Protecting Entities Seeking LEED Certification

Registration is here.

If you register, be sure to let me know! Would love to meet more blog readers in person! 

 

Something to Hang Your Hat On… (Limitation of Liability clauses) (law note)

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hat rackIn the past on this blog, I have pointed out the benefits of Limitations of Liability clauses.  These are the clauses that state that the most damages that your Firm can be responsible for is capped at a certain dollar amount or your contracted fee.

Do you have a limitations of liability clause in your professional services contract?  You should.  Best practice would be to have such a clause that limits damages against you to a set amount.  For example:

Engineer’s liability to Client for any and all injuries, claims, losses, expenses, damages or claim expenses arising out of this agreement, from any cause or causes, shall not exceed the total amount of $50,000 or the amount of Engineer’s fee, whichever is greater.

While best practice is to have such a provision, it is not always enforced.  In a case arising out of the Western District of North Carolina, the court noted that such provisions will not be enforced where the result would be unconscionable and “elicit a profound sense of injustice.” See  Performance Sales & Mktg., LLC v. Lowe’s Companies, Inc.,2010 WL 2294323 (W.D.N.C. June 4, 2010).

What does this mean in practical terms?  It means that you should endeavor to include a limitation of liability clause, but don’t necessarily think that if you have that you’ve capped your risk.  A court can always decide that the clause is unconscionable.  But, such a limitation is one more thing to “hang your hat on” if and when you find yourself staring down the barrel of litigation*.

* If, however, you are facing litigation, make sure you sign up for regular blog updates.  Starting next week, I am writing a new series on the anatomy of a construction lawsuit, so stick around! 

 

Photo:  (c) BabbNet via CC.

When is a Construction Project truly “Complete”? That depends. (law note)

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Crossing the finish line

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Long-time readers of the blog may remember my earlier post on substantial completion.  However, in looking over my blog stats to see what search terms lead people here, it looks like this is hot topic.  The blog searches came in two general categories:

1.  Those searching strictly for a definition of substantial completion.  Some examples:

  • What does “substantial completion” mean?
  • when does a building achieve substantial completion
  • contracts “substantial completion”
  • substantial completion undefined
  • when is a project substantially complete

For those of you who want a definition, I refer you to my earlier post.  Essentially, however, the term is not always defined, which can be part of the problem.  If you are using AIA contract documents, there is a built in description that defines it as when the Owner can occupy or use the building.  Even the AIA definition, however does not state that there must be a permanent or temporary certificate of occupancy before substantial completion can occur.  While some might presume that a certificate of occupany is required, better practice would be to include language that specifically states that substantial completion also requires that the Contractor deliver to the Owner a certificate of occupany. This leads to the second major category of blog search terms related to substantial completion:

2.  Those looking to compare substantial completion with certificates of occupancy.  Examples include:

  • certificate of substantial completion vs certificate of occupancy
  • substantial completion or final completion
  • completion vs substantial completion
  • construction certificate of substantial completion

This can be a confusing distinction, but in reality the two are generally unrelated to each other [unless you state that a Certificate of Occupancy is part of the Substantial Completion process.] A Certificate of Occupancy is issued by the Building Department official when the building fulfills all requirements to be safely occupied.  In contrast, a Certificate of Substantial Completion is requested the contractor and granted by the architect.  Sometimes things that need to be completed before the architect can issue a certificate of substantial completion do not prevent the building of receiving Certificate of Occupancy.  [Unless, that is, you are in an odd jurisdiction, where a Building Inspector will demand a Certificate of Substantial Completion before issuing a Certificate of Occupancy.] A final note:  for those who were wondering about Final Completion, this occurs after the final inspection; i.e., after the architect verifies that the punch list is complete and all contract terms have been met.   [The punch list work can be conducted while the Owner has beneficial use of the building.]  At Final Completion, the final Certificate of Payment is issued. Confused yet? Drop me a line.  And, share below:  what has been your experience with certificates of occupancy and whether or not they relate to substantial completion?

Photo (c) Euromotorworks. 

 

Understanding & Modifying Key Construction Contract Terms

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As I mentioned, I  was one of three amigos who spoke on a Construction Contract webinar last week.  We had a good turn out and lots of very astute questions during the Q&A portion.  While you will miss all of my witty insightful helpful commentary, you can check out the slides for my portion, on understanding and modifying key terms, here:

Drafting Construction Contracts

My comrades’ presentations can be found by visiting Chris’s blog (for payment provision issues) and Craig’s blog (for damages and dispute resolution issues).  Happy viewing!