Construction projects are complex and, when issues arise, it’s crucial to understand the different types of damages and how they are calculated. Whether you’re an owner or contractor, knowing the types of damages you may claim or might face can help you prevent financial losses and resolve disputes effectively. Here’s a breakdown of the key types of damages in construction and what they mean for your project.
Owner Damages: Direct, Consequential, and Liquidated
Direct or Actual Damages
When work is defective, incomplete, or delayed, owners may claim direct or actual damages. These damages cover the cost to repair or replace defective work, or to complete work that exceeds the original contract price. Additional costs, such as loss of use or increased financing, may also be recovered.
Consequential Damages
Consequential damages arise from a breach of contract that causes indirect financial losses. These damages are more difficult to calculate and may include lost profits or extended costs due to delays. In many construction contracts, these damages are waived due to their unpredictability, but when they are included, they can sometimes exceed the value of the contract.
Liquidated Damages
Pre-agreed liquidated damages compensate owners for specific breaches, such as failure to complete the project on time. These damages are typically calculated on a per-day basis or as a lump sum, representing the actual financial loss the owner incurs due to the contractor’s delay.
Contractor Damages: Loss of Productivity, Delay, and Escalation
Loss of Productivity and Extra Work
Contractors often face productivity losses or the need to perform extra work due to project changes or delays. Damages can be calculated by comparing the contractor’s actual productivity against what was planned, using methodologies such as the measured mile or total cost method.
Delay and Escalation Costs
When projects are delayed, contractors may incur additional costs due to extended overhead, price escalation for materials, and acceleration costs to meet deadlines. Contractors may seek damages for these financial losses, using various industry-accepted methods to support their claims.
Consequential Damages for Contractors
In addition to direct losses, contractors may also claim consequential damages. These could include damage to reputation, lost future project opportunities, and loss of bonding capacity, which can lead to financial strain or, in extreme cases, insolvency.
