Consequential damages are losses that result indirectly from a breach or event, beyond the direct cost of the affected work.
Definition
In a project contract, consequential damages may refer to secondary losses linked to a breach or other event, such as certain lost business income or interruption costs. The boundary between direct and consequential loss depends on the contract wording, applicable law, and facts, so examples are not universal. Agreements may exclude these damages, limit them, or carve out exceptions. Engineering firms review the clause alongside liability caps, indemnity, insurance terms, and the services they provide. The term does not mean every downstream cost is consequential, and an exclusion does not necessarily eliminate all liability. Nor does the label determine whether a claimed loss is recoverable. Owners use the clause to understand how the agreement allocates exposure if project problems affect a client’s broader business. A federal contract reference such as FAR Part 36 addresses construction and architect-engineer contracting, but the treatment in a specific agreement turns on its terms and governing law.
How owners use it
- Owners check whether the agreement excludes consequential damages and whether exceptions are listed.
- A firm separates a $20,000 redesign cost from a claimed $70,000 business interruption loss for contract review, without assuming the legal classification.
- Contract review reads damages wording together with liability limits, indemnity, and defense obligations.
- Project leaders preserve records of schedule effects and client communications that may be relevant to a claim.
