How Does a Waiver of Consequential Damages Work?
By Wyatt Cooper · Published · 6 min read
Key takeaways
- A mutual waiver of consequential damages means neither owner nor contractor can claim the other's indirect losses, such as lost rent, lost profit or office overhead.
- Direct damages, such as the cost to repair defective work, are not waived.
- For an owner, the biggest give-up is usually lost income from a late opening; liquidated damages are the common way to keep a remedy for delay.
- Before signing, an owner should ask what its delay would really cost, whether liquidated damages are set, and whether insurance covers what the waiver removes.
A mutual waiver of consequential damages is a clause in which the owner and contractor each give up claims against the other for indirect losses. The owner waives things like lost rent, lost income and financing costs; the contractor waives things like home-office overhead and lost profit on other work. Direct damages, such as repairing defective work, stay recoverable, and liquidated damages for delay usually survive the waiver.
What the clause does
The AIA's general conditions, A201–2017, carry a mutual waiver of consequential damages in Section 15.1.7, in the claims and disputes article (AIA Contract Documents). A201 is incorporated by reference into the AIA owner–contractor agreements A101, A102 and A103 and the contractor–subcontractor agreement A401 (AIA's A201 summary), so an owner signing an AIA-based contract usually signs this waiver unless it is edited. Many non-AIA contracts have a similar clause.
The AIA lists the owner's side as rental expenses and losses of use, income, profit, financing, business, reputation and employee productivity, and the contractor's side as office expenses, personnel compensation, losses of financing, business and reputation, and loss of profit except anticipated profit arising directly from the Work (AIA Contract Documents). It separates liquidated damages from consequential damages: a predetermined amount for a specific breach such as delay, which the waiver does not stop.
What each side gives up and keeps
| Loss | Kind | Under the waiver |
|---|---|---|
| Owner's cost to repair defective work | Direct | Still recoverable |
| Owner's lost rent from a late opening | Consequential | Waived |
| Owner's extra financing interest during a delay | Consequential | Waived |
| Owner's liquidated damages for late completion | Agreed in advance | Usually preserved |
| Contractor's home-office overhead during an owner delay | Consequential | Waived |
| Contractor's profit on the contract work itself | Direct | Still recoverable |
| Contractor's profit lost on other jobs it could not take | Consequential | Waived |
The waiver is mutual, but the risks are not the same size. A contractor's consequential losses are mostly its home-office overhead and the work it could not take; an owner's can be months of a building's income. That is why the owner usually cares more about what replaces the lost remedy.
Liquidated damages: the owner's delay remedy
Liquidated damages are a daily amount set in the contract for late completion. The federal clause is the public model: if the contractor fails to complete the work in the time specified, it pays the amount the contracting officer inserts "for each calendar day of delay until the work is completed or accepted" (FAR 52.211-12). Set the daily figure from a real estimate of what a day of delay costs you; a figure that is a penalty rather than an estimate may not be enforced.
See what is a GMP contract and delivery methods compared for how the contract form shapes these risks, the owner's guide for the whole job, and the project lifecycle for where the contract is signed. When a delay does happen, see how an owner responds to a delay claim.
A worked example: a fictional retail building
The owner is fictional: "Harbor Lane Partners", building a retail center whose tenants will pay $40,000 a month in rent. The contract carries the mutual waiver and liquidated damages of $1,000 per calendar day. The contractor finishes 60 days late, its own fault, and a leaking roof section costs $25,000 to repair.
Harbor Lane Partners: claims after late completion
- Lost rent, 2 months at $40,000
- $80,000: consequential, waived
- Liquidated damages, 60 days at $1,000
- $60,000: preserved
- Roof repair
- $25,000: direct, recoverable
- Total the owner can pursue
- $85,000 ($60,000 + $25,000)
- Without the waiver and without liquidated damages
- Actual lost rent ($80,000) plus repair ($25,000), if proven
The arithmetic: 60 days × $1,000 = $60,000; plus $25,000 = $85,000. The $80,000 of lost rent is gone under the waiver, and the $1,000 daily rate recovers $60,000 of it in effect. Had the owner set the rate from its real carrying cost, about $1,315 a day ($40,000 × 12 ÷ 365), the liquidated damages would have been about $78,900 for 60 days.
What an owner should ask before signing
- What does one month of delay cost us: rent, financing, a missed season? Write the number down.
- Are liquidated damages in the contract, and is the daily rate a real estimate of that cost?
- Does the waiver carve anything out, such as amounts covered by insurance, or losses from gross negligence?
- Does our builder's risk policy (lost rent needs a delay-in-completion or soft-cost endorsement) or business interruption insurance cover the losses the waiver removes?
- Does the waiver flow down to subcontracts, and does it match the architect's agreement?
The bottom line
A mutual waiver of consequential damages trades away each side's indirect losses. For an owner that mostly means lost income from a late finish, so price that risk before you sign.
Keep direct damages, set liquidated damages from a real estimate of what a day costs you, and ask your lawyer and insurer what the waiver leaves uncovered.
Sources
- Understanding Waiver of Consequential Damages in Construction Contracts (February 28, 2023) — AIA Contract Documents (The American Institute of Architects). Read October 22, 2026.
- Summary: A201–2017, General Conditions of the Contract for Construction — AIA Contract Documents (The American Institute of Architects). Read October 22, 2026.
- FAR 52.211-12, Liquidated Damages—Construction — Acquisition.gov, U.S. General Services Administration. Read October 22, 2026.
Questions
What are consequential damages in construction?
Indirect losses that follow from a breach but are not the cost of the work itself: an owner's lost rent or income and financing costs, or a contractor's home-office overhead and lost business elsewhere.
Does a waiver of consequential damages stop liquidated damages?
Usually not. The AIA treats liquidated damages as a separate, agreed amount, and many waivers say so. Check that your contract does.
Should an owner strike the waiver?
Some owners do, some negotiate a cap or carve-outs, and many keep it and rely on liquidated damages and insurance. Contractors price the risk either way. Decide with your lawyer once you know what a delay would cost.
Is a waiver of consequential damages enforceable?
Generally, between commercial parties, but it depends on the state, the words and the facts. Ask your construction lawyer about your state.
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