Date Published: September 27, 2023

An actual damages clause in a construction contract is potentially a high-risk clause for the contractor because it allows the owner to recover all of the actual damages that they suffer as a result of the contractor’s breach of contract. This can include a wide range of costs, such as:
  • Increased costs of labor and materials
  • Lost profits
  • Rental costs
  • Storage costs
  • Additional interest on financing
  • Liquidated damages paid to third parties
  • Other indirect costs

The amount of actual damages that an owner can recover can be very difficult to predict, and it can be significantly higher than the liquidated damages amount specified in the contract. This is because actual damages canactual damages clause include all of the costs that the owner incurs as a result of the delay, even if those costs were not foreseeable at the time the contract was signed. In addition, the burden of proof is on the contractor to show that the owner’s actual damages were not caused by their breach of contract. This can be a difficult task, especially if the project is complex and there are multiple factors that could have contributed to the delay.

As a result, an actual damages clause can pose a significant financial risk to the contractor. If the contractor is found to be in breach of contract, they could be liable for a much larger sum of money than they would be under a liquidated damages clause.

For this reason, contractors should carefully consider the risks before agreeing to an actual damages clause in a construction contract. It is highly advisable that contractors negotiate for a liquidated damages clause instead, even if its a high number. A liquidated damages clause specifies a fixed amount of money that the contractor will pay to the owner if the project is delayed. Liquidated damages clauses are more predictable for contractors, and they can help to limit their financial exposure in the event of a breach of contract.

Here are some tips for contractors to protect themselves from the risks of an actual damages clause:

  • Carefully review the contract before signing it. Make sure that you understand all of the terms and conditions, including the actual damages clause.
  • Negotiate for a liquidated damages clause instead of an actual damages clause.
  • Carefully manage the project and monitor your progress closely. This will help to identify any potential problems early on and take steps to mitigate them.
  • Communicate regularly with the owner and keep them updated on the status of the project. This will help to build trust and avoid misunderstandings.

Surety1.com is a service of AssuredPartners one of the largest and fastest growing insurance agencies in the nation. Representing over a dozen surety bond companies, Surety1.com is the premier provider of surety bonds nationwide since 2003.

Performance and Payment Bond Underwriting Blogs.

Oregon contractor license bonds are increasing by $5,000

How to Get Bonded

1. Apply Online
Using our Free & Secure Application
2. Get Your Free Quote
Applications are No-Obligation
3. Get Your Bond
Most Bonds are Approved in 1-2 Business Days

Surety Bond Experts

Surety1 was founded in 2003 and helps thousands of clients find the best prices on their surety bonds. We take pride in our work so that we can give you great service. Learn more about Surety1.

Get started with the bond application process today.

Most bonds are fully processed within 1-2 business days. In some cases, you'll hear back from Surety1 within hours!