Contract documents

March 21, 2023

A mutual waiver of consequential damages clause is a regular occurrence in construction contracts. This mutual waiver continues to be a part of AIA Contract Documents, including the A201-2017, General Conditions of the Contract for Construction. Though this is a regularly accepted contract provision, the meaning of “consequential damages” may not always be obvious to the parties. When this topic comes up during negotiations, you may ask yourself what consequential damages are.

Generally, consequential damages relate to indirect losses that arise from a breach of contract, such as lost profits, damaged reputation, loss of business opportunities, and loss of use. The types of damages that are considered consequential may differ, depending on your jurisdiction. Some jurisdictions have interpreted consequential damages to include losses unrelated to the underlying contract. Other jurisdictions have held that typical damages, such as delay damages, replacement costs, and the like, are direct in some circumstances, and indirect in others.

If you have experienced consequential damages, you can understand why they may be difficult to prove and quantify. In some jurisdictions, the injured party may have to prove that the consequential damages were proximately caused by the breach, and they were reasonably foreseeable when the contract was executed. When damages are difficult to establish and quantify, the parties can incur significant challenges when asserting a claim, such as time and legal costs. Parties may consider defining what constitutes consequential damages in the contract to avoid a misunderstanding later in the project or when claims arise. Similarly, parties may consider excluding certain damages from this definition.

When parties decide to mutually waive consequential damages in a construction contract, they remove the uncertainty of claims for consequential damages, and the potential black hole for establishing entitlement to them. By including this mutual waiver in your contract, you (and your counterparty) are agreeing that if a claim arises for consequential damages, neither party will assert the right to recover these damages. The parties remain able to make claims for direct damages, such as repair or replacement costs.

AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.