Managing financial risk on a project is handled by many contract provisions, but placing a cap on all damages or even segments of damages, delays for example, can further reduce financial risk. Damage caps typically have some correlation to the anticipated profit on a project, usually some percentage of the expected profit. Also, having limitations on liability tied to available insurance is another way to cap, or at least mitigate damages.

An example is:

“Any and all claims, demands, offsets or backcharges by Contractor against Subcontractor shall first be asserted and exhausted against Subcontractor’s insurance. Thereafter, Subcontractor’s direct uninsured liability shall be capped at $25,000.”

If there is no damage cap in the agreement, then you are likely liable for unlimited damages. Therefore, having any caps on damages, even if high, is better than no caps at all. Additionally, keeping your subcontractors’ liability tied to, and not less than your either uncapped or capped damages should mitigate some of your risk.

We hope this helps you understand the construction contracting process a little better. If you have questions about your contract, send us an email or give us a call (https://www.thelienzone.com/contact/). And make sure to check out our other free tools (https://www.thelienzone.com/tools)and our weekly podcast (https://www.thelienzonepodcast.com/).