When I draft and negotiate construction contracts—whether representing contractors, subcontractors, or owners—there’s always one provision that seems to get special attention: the waiver of consequential damages. For good reason. It can significantly impact both parties’ exposure if things go sideways on a project.
So what are “consequential damages,” and why do they matter? Consequential damages are losses that don’t flow directly from a breach, but arise as a secondary result of it. For an owner, this might include lost profits from project delays, loss of use or lost rental income. For a contractor, it might be loss of bonding capacity, lost business opportunities, or financing issues if the project goes off track.
This is why the AIA contracts and many custom forms include a “waiver of consequential damages” clause. Consider the industry standard provision from AIA A201-2017, Section 15.1.7, which reads:
“The Contractor and Owner waive Claims against each other for consequential damages arising out of or relating to this Contract. This mutual waiver includes: (1) damages incurred by the Owner for rental expenses, for losses of use, income, profit, financing, business and reputation, and for loss of management or employee productivity or of the services of such persons; and (2) damages incurred by the Contractor for principal office expenses including the compensation of personnel stationed there, for losses of financing, business and reputation, and for loss of profit except anticipated profit arising directly from the Work.”
Courts often enforce these waivers strictly, especially when they’re clearly worded. But what happens if your contract says nothing?
A recent New York appellate case, Vermillion v. The Roofing Guys, Inc., drives this point home. The plaintiff, a homeowner, hired a roofer for a simple re-roofing job. During the project, a storm caused significant water damage. The homeowner sued for breach of contract and attempted to introduce expert testimony to support a claim for consequential damages—claiming financing delays, increased mortgage rates, and higher material costs. But the contract said nothing about consequential damages.
The court refused to allow that claim. Why? Because under New York law (like most states), consequential damages can only be recovered if the parties specifically contemplated them at the time of contracting. The court found the agreement was a “bare bones” contract that didn’t mention these types of damages, and there was no evidence the parties ever discussed them. As a result, the homeowner was barred from presenting any evidence or testimony about consequential damages.
Here’s the lesson: don’t be silent on the issue of consequential damages. Whether you’re an owner or a contractor, address the risk head-on. If you want to preserve the right to recover these types of damages, or if you want to avoid the risk entirely, you need to say so in the contract.
Construction is already risky. Clear contract language can at least ensure you know what risks you’ve agreed to bear. Don’t leave it to the courts to guess.