Posted by Thomas A. Littlefield, OldRepublicSurety
When a construction project is delayed, damage claims can result, and fingers are quickly pointed at the contractor to be held accountable for these damages. Planning for all the potential delays that can affect a project is not easy ― especially in today’s unpredictable pandemic environment with its supply chain shortages, volatile prices of materials, and inadequate pool of skilled workers. With this backdrop, today, sureties are all the more concerned about the increased exposures that arise when a contractor may not be fully aware of the liability and financial risk they are exposed to from these clauses and is not adequately prepared to avoid or mitigate this exposure.
A strong strategy for risk mitigation may potentially save the contractor from financial devastation and allay the concerns of their surety. It requires the contractor to perform diligent contract reviews and understand a specific contract’s terms and conditions intimately during the negotiation stages. With the help of their team of professionals ― including their bond producer, surety, and construction attorney ― they should review a contract to develop a 360-degree picture reflecting the contract’s complexities, including a close review of both contract rights afforded to them as well as for all damages for which they may be held liable in both direct and consequential terms. With this understanding, the contractor will be able to form a strategy to assess and mitigate how the various damage clauses could affect the company’s business.
Before signing a contract, the contractor must:
- Review it with their attorney and understand the legal remedies they can use.
- Determine the maximum financial liability they could incur if the completion schedule is not met.
- Determine the amount of damage clause risk they are financially able and willing to take.
Before taking on any new project, it’s always useful to be familiar with the terminology and various types of damage clauses that can appear in contracts.