Developers, builders, contractors, and suppliers use construction contracts to formalize various agreements. These contracts outline countless numbers of details and involved every part of a building project. When properly executed, everyone gets their work done on time, meets their budget, and fulfills all promised quality obligations. Unfortunately, construction projects are often extremely complex, and things have a way of going wrong, which can mean a contract breach.
The reasons for the breach will vary, but sometimes someone incurs damages. There are two types of damages – direct or consequential damages. Direct damages cover losses directly related to the breach of contract. It involves the expense of completion or the correction of the work and is relatively easy to identify and prove.
Consequential damages are more complicated
These are indirect damages that extend beyond the direct damage. Unless the consequential damages are limited in the contract by a waiver, they can extend beyond the contract terms. The liability can include foreseeable losses incurred by the other party. There are two points that the claimant must prove for actual consequential damages:
- These damages were reasonably foreseeable at the time the parties signed the contract.
- The breach proximately caused these damages.
Defining foreseeable will be difficult, as will proving a specific amount of damage is due. Nonetheless, the plaintiff must prove damages with reasonable certainty. Examples of foreseeable damage for a building owner would be loss of the use of a building, lost profits from building use, or increased finance expenses due to the breach. A contractor could claim lost business opportunities, lost profits or damage to their reputation. Nonetheless, these will often prove difficult to prove in a quantifiable way.
Liquidated damages are an option
The contract may have a liquidated damages clause with a predetermined amount of money for damages typically caused by a breach. These are designed to resolve these issues more quickly. An example of this would be a subcontractor missing a deadline for completed work. These liquidated damages will be quite specific in the contract and, for example, often include a sliding scale based on days past the agreed-upon completion date.
Effective contracts protect businesses
Attorneys who regularly handle construction contracts and construction law issues can be instrumental in protecting the client’s interests. This includes proving consequential damages, drafting an agreement with actionable liquidated damages clauses, and protecting clients from unfair terms that could damage their reputation or lead to financial damages.