Limitation of liability clauses do just that, they limit the liability to which your company may be subject should a project experience problems. Typical limitation of liability clauses state that the maximum liability to which the contractor may be subject is $___________. The amount of the limitation is entirely negotiable.
Limitation of liability clauses are, however, subject to challenge. If the amount of your liability is too low, a court may find that you have no incentive to do good work. If that is the case, then the court will find that the clause is against public policy and void.
Ultimately, if you are negotiating a limitation of liability clause in your contracts, make sure that the amount you could be required to pay is related to the value of the work you performed on the project. For example, limitation of liability clauses often times limit a company’s liability to the amount that it was paid on the project. Courts have upheld similar clauses and they could prove to be invaluable if the project experiences difficulty.
So, what are you doing to limit your company’s liability on construction projects?