The potential loss to the owner if something goes wrong during
construction (e.g. business interruption, loss of production...) is
often far greater than the cost of construction. Owners reasonably
want to hold contractors accountable for delays or other events in
the contractor's control that may affect the owner's bottom
line. But contractors reasonably don't want to take on a risk
that greatly exceeds the value associated with a particular
contract. For a time it was common to see broad exclusions of
consequential damages in industrial construction contracts.
Sophisticated contractors in Alberta were simply unwilling to
accept a risk of the magnitude likely to be associated with the
delay or shutdown of a revenue-generating asset.
Now the trend appears to be towards a more complex sharing or
allocation of risk.
Limitations (monetary caps) on consequential damages, rather
than a complete exclusion of liability for consequential damages
(alternatively, a cap on all possible damages arising from the
More elaborate definitions of risks that are or are not
excluded (e.g. instead of an exclusion clause that simply refers to
consequential or indirect damages, a more detailed listing of
excluded damages such as losses caused by business interruption,
loss of profits, loss of downstream contracts...)
More exceptions to the exclusion (Contractors: beware of the
clause that excludes liability for consequential damages, excepting
any consequential damages that are foreseeable; ask
yourself, is it foreseeable that a construction mishap could take
down the existing plant for a period of time? If the answer is yes,
then this exclusion clause does not protect against liability for
the very significant losses associated with such an event!)
More prevalent use of liquidated damages in industrial
construction contracts (in place of consequential damages for
delay, some form of liquidated damages may be payable, ideally in
an amount sufficient to hold the contractor accountable but not so
great as to present a risk of bankrupting the contractor).
Contract provisions excluding consequential damages are not all
the same. Now more than ever, these clauses can be very narrow or
very broad in scope and effect, and should be the subject of
deliberate review and negotiation.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Alberta is going through a difficult economic period. These times can be challenging and while owners struggle to get their business through the rough patch, they want to preserve the assets and capital they have built up.
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