Consequential loss clause: what it means, a typical example, and what to ask for
A consequential loss clause limits liability for indirect losses: lost profit, lost revenue, delay costs on other projects, financing costs. In a fair subcontract the exclusion is mutual. The risk for subcontractors is a one-sided version that protects the builder while leaving you liable for everything.
A typical builder version
The Contractor is not liable to the Subcontractor for any Consequential Loss howsoever arising. The Subcontractor indemnifies the Contractor against all loss, damage, cost and expense, including Consequential Loss, arising out of or in connection with the Subcontractor's Works.
Illustrative wording of the kind found in builder-authored subcontracts, not taken from any one contract.
What it means for you
The builder owes you nothing for your indirect losses, while you are liable for the builder's indirect losses too, including lost profit and delay costs that can dwarf your contract price.
- The exclusion protects the builder only.
- "Consequential Loss" left undefined. Australian courts have given the phrase different meanings over time.
- No overall cap on your liability under the subcontract.
What market looks like
A mutual exclusion of consequential loss, with the term defined (loss of profit, revenue, opportunity, use, financing costs), and an overall cap on each party's liability, commonly the subcontract sum, with standard carve-outs such as fraud and personal injury.
What to ask for
"Neither party is liable to the other for Consequential Loss, meaning loss of profit, revenue, opportunity or use, and financing costs, however arising. The Subcontractor's total liability under this Subcontract is limited to the Subcontract Sum."
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Common questions
What is consequential loss in a construction contract?
Losses that flow indirectly from a breach, such as lost profit on other work, liquidated damages under the head contract, or extra financing. Because Australian courts have read the phrase differently over time, define it in the contract rather than relying on its ordinary meaning.
Should a consequential loss exclusion be mutual?
Yes. A one-sided exclusion leaves the subcontractor carrying the builder's indirect losses with no matching protection.
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General information, not legal advice. Example wording is illustrative. Check any clause you rely on against your full contract and your state's Security of Payment Act. Written by Mat Kennedy, The Construction Contracts Co.