Manage through economic uncertainty by limiting your liability

With the post-pandemic recovery and federal stimulus funding working its way through the economy, most economists expect inflation to be a concern for the next few years. As we have noted before, there is material price escalation in the construction industry due to material shortages and snarled supply chains, which can result in larger claims against design firms. One option that firms should reexamine to control for these increased risks are limitation of liability provisions. Firms should realize that in the absence of a limitation of liability in their agreement with a client, they are responsible for all of the reasonably foreseeable damages that the client suffers due to design firm negligence in the performance of professional services.

A limitation of liability clause can take one or more of the following forms:

  • liability caps that limit potential liability to a stated amount or the amount of insurance proceeds;
  • waiver of certain types of damages, such as consequential or indirect damages; or
  • exclusive remedies for certain breaches, such as the re-performance of services at cost if the lowest responsive bid is higher than the client’s anticipated construction budget.

For a more detailed discussion, firms should review our advisory, Limitation of Liability as Allocation of Risk, so that they have reasonable alternatives to propose to their client.

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