Financial Caps On Liability – Getting The Drafting Right

Careful drafting is key when it comes to financial caps on liability provisions. These are often included in construction contracts (consultant appointments, building contracts and collateral warranties) to limit the financial liability of a contractor or consultant in the event of a claim being made against them.

A contractor or consultant's liability may be capped at a fixed amount, which may be done by reference to a set figure or the required level of professional indemnity insurance or by reference to the contract sum or fee. Particularly when relating to the required level of professional indemnity insurance, the cap may be on an each-and-every-claim basis or in the aggregate. The financial cap on liability (if included in a contract) will all depend on the outcome of negotiations between the parties and such caps are one of the most frequently debated commercial points in any construction contract.