Limitation of Liability Clause in Project Contracts

1.                   "Consequential Damage" means any damage, loss or injury of whatsoever nature which does not flow directly from the act or omission in question but from a consequence or result of such act or omission including, but not limited to, any loss or anticipated loss of profit, loss or anticipated loss of revenue, Projects interruption, loss of use of any equipment, loss of any contract or other business opportunity and any other indirect loss of a similar nature.

2.                   Unless a contract expressly excludes liability for indirect and consequential damages, the possibility of incurring such liability exists. The Projects head, together with Projects general counsel, must approve contracts that do not expressly exclude liability for indirect and consequential damages.

3.                   Where the customer will not agree to exclude liability for indirect and consequential damages, attempt to obtain an overall liability cap equal to the contract value or up to three times the contract value with Top management approval. Where the contract contains a liability cap in lieu of a disclaimer of indirect and consequential losses, the Contract Approval Process (CAP) should apply to all types of damages (both direct and indirect). An overall liability cap mitigates the lack of a consequential damages disclaimer and is a consideration evaluated when deciding whether to accept the contract without the disclaimer. 

4.                   Another alternative is to request that the customer articulate its specific concerns. If the customer will not accept a complete disclaimer of indirect and consequential damages, attempt to draft the provision such that the customer’s specific concerns are covered while at the same time affording Project Taking Organization some level of protection. If the party negotiating on behalf of the customer cannot articulate the customer’s concerns, request that a party who can do so be brought into the discussion.

5.                   Where Project Taking Organization is performing as a subcontractor, determine whether the customer’s refusal to accept a consequential damages disclaimer is due to flow-down requirements from the prime or an upper level contract. This is another consideration when deciding whether to accept the contract without the disclaimer.

6.                   Inquire about the customer’s insurance coverage for the types of consequential losses about which it is concerned. The party negotiating on behalf of the customer may not realize that certain losses are covered by insurance. Where coverage can be determined, advocate that it is unnecessary for Project Taking Organization to provide an added level of protection in addition to the customer’s insurance and that to do so will result in additional cost.

7.                   In the case of service maintenance contracts, the annual amount of revenue Project Taking Organization receives from the contract is greatly disproportionate to any potential liability that might be imposed for consequential losses. It may also be difficult to establish a causal connection between the service provided and the loss sustained, particularly in the case of a limited scope of work. In those cases it is an unfavorable Projects proposition for Project Taking Organization to expose itself to potentially unbounded losses. Last, argue that in accepting the service contract, Project Taking Organization is not taking on the role of insurer of the customer’s property.

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