Consequential loss in construction projects
Consequential loss in construction projects

The following Construction guidance note provides comprehensive and up to date legal information covering:

  • Consequential loss in construction projects
  • Distinguishing between direct loss and consequential loss
  • Loss of profits
  • Agreed definitions as to consequential loss/indirect loss
  • Examples of direct loss and consequential loss in construction and engineering projects

In construction and engineering projects, the financial consequences of a breach of contract may be considerable. For example, if the work is defective or delayed the employer may suffer losses such as remedial costs, wasted costs, loss of profits, loss of business and loss of revenue.

Losses caused by a breach of contract are only recoverable if they satisfy the remoteness test set out in Hadley v Baxendale, that is to say, the loss is a direct loss or a consequential (also known as an ‘indirect’) loss. The meanings of these terms are explained further below.

It can sometimes be difficult to determine whether a particular loss is a direct loss or a consequential loss, as it will always depend on the particular circumstances. The distinction can be particularly important in construction matters, as many construction contracts limit or exclude liability for consequential loss.

For more information on excluding or limiting consequential loss in construction contracts, the care that should be taken when drafting such provisions, and the approach taken in standard form construction contracts, see Practice Note: Limiting liability in construction contracts.

The potential scope of loss arising from a breach of a construction contract, and the uncertainties surrounding it, is one of the reasons why parties commonly provide for liquidated damages in their contract. For more information see Practice Note: Liquidated damages in