Consequential damages, also known as indirect or special damages, are a type of damages that arise as a result of a breach of contract or negligence but are not directly caused by the breach itself. Instead, they are the secondary or consequential effects of the primary breach. In the context of construction claims, consequential damages refer to losses or costs that go beyond the direct physical damages to the project.
In construction claims, consequential damages typically arise from delays, disruptions, or defects in the construction project. Some common examples of consequential damages in construction claims include:
- Delay Costs: Consequential damages may include additional expenses incurred due to project delays, such as extended labor and equipment costs, increased financing expenses, and potential penalties for missing contractual deadlines.
- Loss of Use: If a construction project is delayed, the owner may suffer losses related to the inability to use or occupy the completed facility, resulting in lost revenue or increased expenses elsewhere.
- Business Interruption: Construction delays or defects may impact the operations of a business relying on the completed project, causing financial losses and additional expenses to maintain business continuity.
- Loss of Profit: If a construction project is delayed or not completed as expected, the owner may lose potential profits that were anticipated from the project’s use or sale.
- Additional Construction Costs: Consequential damages may include costs incurred to correct defects, rework, or remediate construction issues that arise due to a contractor’s breach of contract or negligence.
- Increased Financing Expenses: Delays or disruptions in construction can lead to extended financing periods, resulting in higher interest expenses for the owner.
- Liquidated Damages: In some contracts, the parties may agree on a specific amount of compensation (liquidated damages) to be paid by the contractor for certain types of delays. These liquidated damages are considered consequential damages.
It’s important to note that the availability of consequential damages in construction claims may be subject to specific contractual provisions and applicable laws in the jurisdiction where the project takes place. Many construction contracts contain clauses that limit or exclude the recovery of consequential damages to avoid excessive liability for the parties involved. As a result, construction professionals must carefully review the contract terms and understand the potential risks and liabilities associated with consequential damages.