Cian Dillon Brennan explains why contractors should never agree to consequential damages clauses. In a hotel construction delay, liquidated damages cover the client's direct costs, but consequential damages cover lost profits from empty rooms, a potentially business-ending exposure. Brennan says 95% of the time these clauses get removed if you push back during negotiations.
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Hey, Construction Legends. So in this video, we're going to teach you everything you need to know about consequential damages. So in a previous video, we talked about liquidated damages. So if you haven't seen that, go back and find it. If you're on Spotify or iTunes, it's back just whatever, the last episode. So this is an internal training we give to, to our team members to understand exactly what is consequential damage, the difference between liquidated damages and consequential damages, how it can impact the company, how it could potentially put your whole construction business out of business, and we absolutely don't want that to happen to you. So if you get some value out of this, please subscribe and like. And the reason we make these videos is because there's so many construction companies out there that make terrible contractual decisions and end up losing money or going out of business, and we don't want you to be one of them. So enjoy the training. For those of you who don't know me, my name is Cian Dillon Brennan. I'm CEO of Quantum Contract Solutions, and all we're trying to do here is give you as much practical contractual help so that you can make more money on your construction business. Okay, let's get to the training. Okay, so welcome to the training on consequential damages. Now we just had our training on liquidated damages. So they're similar, but they're not the same. Okay, now I'm going to go bring you back to the same photo of the hotel that we did in the last training. If you haven't watched it, go back and watch the liquidated damages training. So we're looking at a hotel. Liquidated damages are reimbursing the client for us being late. So the client, because we're late, has had to, you know, pay other contractors to stay on longer, get more materials, get more equipment. It's cost them money because we're late. And so liquidated damages is to reimburse them for us being late, right? So that's one side of the equation. Now, in the hotel that we're looking at here, there's another cost at play, and that is their loss of profit from not being able to rent out the hotel rooms because we've delayed them. Now, that's a bigger thing. Okay, what can actually do to a client if your client's loss of profit is so big that potentially end your company? Their profit. So if you imagine you're an oil and gas company or this hotel their loss of profit be enormous. And in comparison, your company, it, you know, it could wipe you out. So consequential damages, it's a very simple training that we do. Very, very simple. It's only the difference between liquidated damage and consequential damages. We've got a strategy on how to reduce that. We've got a strategy on how we limit the damage to you of liquidated damage. Consequential damages, the training's— let me tell you how we do it. Just do not sign up for it ever. Don't want our clients to sign up for consequential damages, or consequential loss, it could be called, or loss of profit. The company's loss of profit could be the end of the contractor's business. It is just too risky, and therefore we never sign up for it. It's very simple training. Let's move on. What are we going to do about it? We're gonna inform the client in a very professional way that we never sign up to consequential damages or loss as a commercial principle. End of story. It is our commercial principle as a business never to sign up for consequential damages or loss. It's too risky. End of story. Now, having reviewed hundreds and hundreds, negotiated hundreds and hundreds of contracts they know this. They honestly, they know that they're asking too much when they ask for this thing. So when you push back, 95% of the time it's accepted. They might come back with some carve-outs to say, well, in this situation, this situation, and obviously you can get into detail there a little bit. But in general, if you've asked to sign up for consequential damages and loss, it is a bad idea. And I would tread very carefully if you feel like you need to go ahead with it. As a company, but of us advising our clients, it is never. Never move ahead with negotiating for consequential damages or loss. It could be the end of your company. And in construction, really, the game of construction is about longevity. The best companies in construction limit their downside risk as the main priority, would rather take jobs that are safer with less risk than take big jobs that have high profit margin but lots of risk. Those companies that take reasonable profit with low risk, they will survive over time and they will continue to grow and grow and get bigger. Companies that have that up and down, they're just dicing, dicing with that. It's the same Warren Buffett, that's his strategy as well. Good company, limited, limited risk, um, and limited downside. That's the way to do it in the construction industry. Hope this makes sense, and I'll see you in the next one.
