Mastering Limitation Of Liability [For Construction Owners/Senior Management]

Hey, Construction Legends! This video that you're about to watch is probably one of the most important videos for reducing your risk on a construction project. So the terms in here— I'm not a lawyer, I don't pretend to be— what's in here is quite of a legal topic. But what it is, you don't really need to understand all the ins and outs, but you need to understand what to do with it, right? So the example I actually give in the video is if you've got, you know, a finance department And you don't need to know all the inner workings of how everything works, but your key figures and what to do with them is what, what is important. So you let the pros work on the stuff that they're good at, and then you make the decision. So this is one of those things where you need to understand what liability means, what, how to limit your liability, and what you're trying to do in the contract to reduce your business risk. How can you take that term in the contract to reduce your risk so that you can stay in business over the long term? It's really important. For those of you who don't know me, my name is Cian Dillon Brennan. I'm CEO of a company called Quantum Contract Solutions. The reason we make these videos is there's so many construction companies out there that lose money hand over fist by not agreeing to these or agreeing to this particular thing that we're talking about in the contract, not understanding what it means. Something goes wrong and it becomes a company ender, as we call them, and we don't want that to happen to you. So watch this video, learn from it, and then implement it into your business so that you can stay in business over the long term and be a really successful construction company. That's it, and enjoy. Hey, Construction Legends, so let's get to a training on the limitation of liability. So before we start, let's put some caveats in there. I'm not a lawyer. I'm assuming if you're listening to this, you are not a lawyer. There is a difference here between how lawyers approach this and how construction people approach this, right? So as people who are on both sides of the fence, our goal is to reduce risk. Now, if we can reduce our risk in whatever way possible, we're going to stay in business over the long term. Okay, so I don't know if you guys have— there's a very famous book called Letters to Shareholders, Jeff Bezos' book, I can't remember the name. But he's written a letter to his shareholders every year since he started. And the key principle that falls through is managing risk. It's the most important thing in his, in the way he looks at growing a business. And I think he's done pretty well. So what we're trying to do is manage risk. And so while the definitions are of what these things are, are important, of course, but it's understanding what to do with them that is more important. What are we trying to achieve in our businesses, in the construction businesses? To reduce the risk. That's important. So while we might not understand all the in-depth, the exact definitions, all of that sort of stuff, what we're trying to do is reduce our risk. So it's like, I don't know if you guys have got, um, you know, accountants in your business. I don't necessarily understand all of the detail, but the key figures I understand. I know what to do with them to make our business successful. That's what I'm talking about. Okay, so Limitation and liability. The first thing is we need to understand a concept called loss or damages. Now, in preparing for this, I went on a hunt. I go, I need to get a good definition of loss or damages, right? So to make sure. But the thing is, it's so conflicting, right? And so that's beforehand. So essentially, you can define loss as an act of omission, something you haven't done and because you haven't done it, you've cost a client, right? And then damages, or you've done something to cost a client, right? Loss or damages. In some other definitions, the first few things that I just said there are categorized in loss. So whatever you've done, you've impacted them and they're at a loss, and then the damages is actually the form of compensation that they pay out, right? Regardless, it doesn't matter. In most contracts, the term loss or damages is defined. So you can go and you can look in the definition. What does loss or damages say? It's defined. A lot of times it might not even be defined. It'll just be defined in the actual clause that we're talking about ourselves, okay? The clause that we're actually talking about within a contract. So while it's important, it's more important to just understand that loss or damages is basically you've done something, you've caused pain to your client, and you potentially owe them money. Okay, that's really what we're looking at. Liability. So instead of using the word liability, because sometimes it can be confusing, just think in your head, responsible for. Who's responsible for? Liability, responsible for. If you use it that way, it makes it very simple to understand what's going on. Now, total liability, right? So the total things that you're responsible for in a contract, that's what we're talking about. Now, what we want to do is we want to limit your risk. And so to limit your risk, we want to limit your total liability, limit the things that you're responsible for if things go wrong. Okay, now I'm just going to read out a clause that we— that I've put in this presentation. If you just listen to it, I'll walk you through. So the total aggregate liability of the supplier to the client for loss or damage, right? So you've done something, you've done something arising under this agreement or in connection with the services or of the goods and services, whether under the contract, um, tort including negligence, under statute or otherwise, act law or inequity, shall be limited to insert. Okay. And that's a limit of liability clause. Now, the key things to understand— what we're trying to do here is limit the liability. We do not want it to be unlimited, right? So what is the problem we're trying to solve? Very simply, we want to reduce business risk. The way we reduce business risk is we want to limit the liability. So we can say if we got 5 or 6 contracts on the go, we all know that they're all— all the liability is limited to X, Y, Z. So our total you know, liability, what we're responsible for across those 3 contracts, is a figure that we know. So we understand the risk. If they're all unlimited, we have no idea of the risk. They could all be company enders. They could all be things that we don't understand. Okay, so the problem we're trying to solve is we want to reduce the business risk. Most contracts have unlimited liability. And so the reason that's the case is because if it doesn't mention anything, if there's no limit of liability, the limit liability is in your favor. You want to limit the liability. So what they'll do is they'll just not put that in the contract, which essentially means it's unlimited. Okay, so most of your contracts, I would say, if you've not known about this, means that most of your contracts you sign are unlimited liability. That's definitely not what we want. It's a huge risk. For you to go under because there's no limit. They could just come after you for everything. Okay, so got to be careful. Now, that's obviously not entirely true. They can't come after you for everything, but with no limit, they have scope to do that. Now, what are we going to do about it? Well, so some key information here. The industry standard and what is widely accepted, right? If you propose it, it should be considered normal. Is to limit the liability to the contract value. Okay, or what's often put in a contract is 100% of the contract value. That's what widely is accepted. And if you do that, you are going to put your business in a position where you know the liability is capped, and therefore your risk has been reduced dramatically. Okay, so let's just rehash what we're trying to do. We know that damages, loss or damages means you've done something. Liability is you're responsible. The total liability or the total aggregate liability is the total things that you're responsible for, for doing loss or damage or for doing something you shouldn't have done. And we want to cap it. And if we can cap it, that reduces your business risk very simply.