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Limitations of Liability: Effective Risk Management

During these difficult economic times, general contractors, subcontractors, architects and engineers are spending extra time and effort in developing effective risk management strategies for their construction projects.  An important contract risk management strategy available for these entities is the inclusion of a well drafted limitation of liability provision in all of their construction related contracts.

While conducting an analysis of your company’s risks related to a particular construction project, I believe it is always important to consider whether your company’s potential liability exposure on a particular project is similar to and bears some relationship to the potential reward your company will receive from properly performing the project.  One of the ways to try to assure yourself that your company’s liability exposure is not out of proportion with its potential reward is to draft and include a limitation of liability in your company’s construction contracts.

My recommendation is that your limitation of liability provision be drafted in such a fashion that your company’s total liability for any and all claims related to the project shall in no event exceed the contract price for that project.  These types of limitations of liability are routinely enforced in the State of Indiana, and go a long way in helping your company have an effective risk management strategy with respect to its contracts.

If you need assistance in drafting a limitation of liability provision to include in any of your construction related contracts, our construction lawyers are ready to assist you in this endeavor.