While the AIA claims that mutual waivers of consequential damages are common, this should not be confused with being advisable.
Though often drafted as a mutual waiver, a project Owner has much more to lose by agreeing to a waiver of consequential damages than the Contractor does, as nearly all of the Owner's post-completion damages would be consequential in nature.
Imagine a recently built hotel project. The Project was completed on time and has been operating smoothly for several years, until after a storm, the building envelope begins to leak, damaging guestrooms, conference rooms, and amenity spaces. Consequently, the Owner is forced to close several floors and many of its event spaces until the defective work can be repaired. Thus, the Owner is deprived of significant revenue for the weeks or months the repairs take. The Contractor is required to foot the bill to repair the faulty envelope, as these are direct, not consequential, damages. However, if the Owner accepted a waiver of consequential damages, the Owner cannot recover the revenue it lost during the repair process either from the Contractor, or its insurance carrier, despite the fact that the Contractor’s liability insurance will ordinarily cover these losses.
On the other hand, if there is no such waiver, the Contractor must compensate the Owner for this lost revenue, and the Contractor’s insurance will typically cover and pay for these damages.
So what is an Owner to do the next time they come across this thorny issue?
Initially, an Owner should always attempt to delete any proposed waiver of consequential damages entirely.
However, if a waiver cannot be deleted entirely, the Owner should consider offering to limit the consequential damages it can recover, in both type and amount. By limiting the type of recovery to economic losses incurred as a result of post-completion defects and limiting the amount of such recovery to the contractually-required insurance limits (and Fee), the Owner will guarantee a lion's share of its recovery.
