Many contracts I review include an express obligation for a design firm to be responsible for consequential damages. Consequential damages are often defined as “indirect damages” and can include things completely out of proportion to an architect or engineer’s fee. This can be very problematic as these damages may include loss of use or loss of profits, and they can be excluded from your Professional Liability policy.

Even if a contract remains silent about consequential damages, a firm can still be liable for them. Best practices for design firm contract reviews should be to initially delete any client-drafted provisions that hold you responsible for consequential damages. However, a firm should not stop there. A provision should then be added to the contract that clearly states that neither the design firm nor client will be responsible for consequential damages due to any alleged failures by either party.

Please note, contract review services are provided from an insurance perspective only and do not constitute legal advice.