ConstructionRisk Report (December 2025)

Inside this Issue

• A1 - Waiver of Consequential Damages Contract Clause Didn’t Protect Designer Against Lawsuit for Costs of Repairing Structural Design Defects
• A2 - Accounting for Tariffs in Construction Contract
• A3 - Homeowner’s judgment against Contractor Reversed because it failed to prove amount of its damages as of the date of the breach of contract

Article 1

Waiver of Consequential Damages Contract Clause Didn’t Protect Designer Against Lawsuit for Costs of Repairing Structural Design Defects

See similar articles: Consequential Damages | direct damages

When a property owner brought a breach-of-contract action against the architectural firm it hired to serve as architect of record for a project involving design and construction of six-story hospital, it sought to recover costs of repairing multiple structural design defects.  The Architect moved for summary judgment, asserting that the waiver of consequential damages clause in the contract barred recovery by the Owner.  The court denied the motion because it concluded the damages were direct damages rather than consequential damages. Orlando Health Inc. v. HKS Architects v. BBM Structural E, 792 F.Supp.3d 1298 (Florida, 2025). 

During construction of the hospital, various structural defects became obvious. These defects were determined to be design defects rather than construction defects.  They were serious and required immediate repairs.  Plaintiff filed suit against HKS which then filed a third-party complaint against BBM, alleging that BBM is the responsible party because it committed the structural design errors. The court rejected  the defendants’ motion to enforce the waiver of consequential damages clause, “because at least some of the damages sought by Orlando Health flowed directly and necessarily from HKS's breach of contract….”

      Pursuant to the contract in debate in this case. HKS and Orlando Health “waive[d] consequential damages for claims, disputes, or other matters in question, arising out of or relating to th[e] Agreement.”  The subcontract between HHS and the structural engineer had a similar waiver of consequential damages clause.  And “BBM contractually agreed to be bound to HKS to the same extent HKS was contractually bound to” Orlando Health.”

The court stated that soon after construction began, the construction manager for the project discovered multiple structural failures due to design errors and omissions in the structural engineering plans. “Immediate action was required to correct those failures, including some demolition and rebuilding. That action was taken, at significant cost.”

“The first failure appeared on the second floor of the hospital, where the slab was cracking at each column line. The cracking occurred because a full second layer of reinforcing steel—known as “top mat rebar”—was not included in the structural engineering plans. (HKS admitted that the reason the second layer of rebar was not installed was that it was not clearly called for in the drawings. BBM agreed, and it made revisions and additions to its drawings so that the problem could be corrected, The remediation of this failure required “coring into the concrete, adding rebar through columns, and jacking of the slabs, together with the partial demolition of the elevated slab ... and completely repouring the concrete for that area.” As damages arising from this defect, Orlando Health seeks $1,499,193 for the slab repair and $79,000 for expert slab-remediation peer-review services.

The second defect involved a cantilevered overhang on levels 3 and 4 of the North Tower of the hospital. As admitted by BBM, its design was inadequate to support the cantilevered overhang. (Id.). For remediation of this defect, Orlando Health seeks recovery of the $233,153 it spent to correct the cantilevered overhang and column. It also claims $37,000 for peer-review services. The third and fourth issues requiring remediation were caused by deficiently designed structural beams. The third issue, which stemmed from these deficient beams, manifested itself in the deflection (bending and deformation) of the slab at Levels 2 and 3 of the hospital's East Tower. For this, Orlando Health seeks recovery of $895,845 it expended to repair the unevenness of the floor caused by the beam sinkage and $208,750 it paid for peer-review and survey services.

Remedying what the parties refer to as the fourth issue—the incorrect design of the concrete beams, which caused the floor deflection just discussed—involved expansion of seventeen beams and, in some cases, addition of carbon fiber reinforcement in the beams. This was necessary so that the beams they would “be structurally sound and meet the loading requirements of the building.”  And by the time this defect was discovered, “framing, plumbing, electrical[,] and mechanical” work had begun.  Much of that completed work had to be removed to do the necessary remediation.  For this failure, Orlando Health seeks $1,152,641—the amount it paid to remediate the beams. Additionally, Orlando Health demands $1,183,090—the cost “to demolish and reinstall previous work-in-place materials that were in the way of the remediation of the ... [b]eams.” And Orlando Health also seeks the $20,000 it paid for peer review services to assess this problem, visit the work site, and write a report.”

The court explained that  Florida courts have defined “consequential damages” as damages that “do not arise within the scope of the immediate buyer-seller transaction, but rather stem from losses incurred by the non-breaching party in its dealings, often with third parties, which were a proximate result of the breach, and which were reasonably foreseeable by the breaching party at the time of contracting.” “ On the other hand, direct damages—sometimes also referred to as “general damages”—“are commonly defined as those damages which are the direct, natural, logical and necessary consequences of the injury.” They “naturally and necessarily flow or result from the injuries alleged” and “may be described as those damages ‘as may fairly and reasonably be considered as arising in the usual course of events from the breach of contract itself.’”

The court here concluded as follows:

Based on the definitions of the relevant terms and the facts of this case, the Court finds that Orlando Health's costs of remediation and repair are not consequential damages that were waived in the Agreement. HKS was contractually obligated to provide plans, including structural engineering plans, for the construction of a hospital in a large project coordinated among many sophisticated parties. The costs of remediation and repair did not “result indirectly from” HKS's plans,9 nor did they arise from “dealings with third parties” in either the more “traditional” sense (such as lost profits or loss of reputation) or the causative way described by the Keystone Airpark court. Instead, the costs to repair and remediate are the “direct, natural, logical[,] and necessary consequences of” HKS's deficient plans.10 Thus, recovery of these damages is not barred by the consequential damages waiver in the Agreement.

Comment:  The designers in this case were hoping the court would enforce a Florida court case precedent of Pipeline Contractors, Inc. v. Keystone Airpark Auth., Case No. 2010-CA-2457 (Fla. 4th Cir. Ct. May 22, 2017) where damages that might have seemed like direct damages were held to be  “consequential.”  The court here obviously disagreed.

Our firm likes to include a mutual waiver of consequential damages clause in contracts.  Our specimen clause provides as follows:

Mutual Waiver of Consequential Damages. Consultant and Client waive all consequential or special damages, including, but not limited to, loss of use, profits, revenue, business opportunity, or production, for claims, disputes, or other matters arising out of or relating to the Contract or the services provided by Consultant, regardless of whether such claim or dispute is based upon breach of contract, willful misconduct or negligent act or omission of either of them or their employees, agents, subconsultants, or other legal theory, even if the affected party has knowledge of the possibility of such damages.  This mutual waiver shall survive termination or completion of this Contract.

 

 

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk Report, Vol. 27, No. 8 (December 2025).

Copyright 2025, ConstructionRisk, LLC

 

Article 2

Accounting for Tariffs in Construction Contract

See similar articles: tariffs

Written by Peter K. Buckley, Esq.
Smith Currie Oles
Fort Lauderdale
Phone: 954.769.5326
Email: pkbuckley@smithcurrie.com pkbuckley@smithcurrie.com

President Donald Trump has implemented his “America First” trade policy throughout 2025 by implementing a sweeping set of tariffs aimed at reducing U.S. reliance on foreign goods. The tariffs, which have fluctuated since January, have included threats of a 145% tariff on goods imported from China, a 50% tariff on steel and aluminum, and a 10% universal import tariff on all goods entering the U.S. With the proposed tariffs constantly fluctuating, the impact has quickly rippled through the construction industry, where cost certainty and supply chain reliability are essential. As contractors scramble to mitigate exposure to escalating material costs and procurement delays, contractors, owners, and construction professionals alike must revisit how tariffs are addressed, or not addressed, in their contracts.

While tariffs are not new, their resurgence under Trump’s trade policy poses unique challenges. The 2025 tariffs have been unpredictable, imposed on nearly every country, and impact every tier of the supply chain.

Impact of Prior Tariffs

The construction industry can look to history for guidance. For example, in 2018 during President Trump’s first term, he imposed a 25% tariff and 10% tariff on steel and aluminum imports respectively. The 2018 tariffs led to immediate price hikes in the market, followed by market instability; however, shortly thereafter, COVID-19 disrupted the construction industry as a whole blurring the long-term impact of the tariffs. The United States and Canada also have a long history of lumber tariffs which have also shown the impact of material price fluctuations on construction costs.

Accounting for Material Price Escalation

Contractors should first understand how tariffs affect the specific materials they intend to use during the course of a project. If feasible, contractors could attempt to account for future material price increases by (1) attempting to lock in material prices with suppliers early on; (2) attempting to pre-purchase materials to avoid future cost increases; (3) identifying domestic material suppliers who will be less-impacted by tariffs than foreign material suppliers; and (4) accounting for potential material price escalations in their bid or proposal.

Despite these strategies, contractors may not be able to account for all material price escalations, especially for long-term or multi-phase projects, and pricing to account for potential escalations may not allow the contractor to submit a competitive bid. In this instance, it becomes imperative that contractors properly allocate the risk of material price hikes in their contracts.

Mitigating the Risk of Material Price Hikes in Construction Contracts

The most important thing that contractors can do to protect themselves from the impact of tariffs is to address them with specificity in their contracts. While material price escalations are relatively straightforward, the impact of tariffs is not. For example, equipment that is manufactured in the United States may not be directly impacted by tariffs; however, if the components used to manufacture the equipment are sourced abroad, the contractor may still encounter price increases from the equipment supplier.

Material price escalation can be addressed under several types of contract provisions; however, the most important are (1) material price escalation clauses; (2) force majeure clauses; and (3) contingency clauses.

1. Material Price Escalation Clauses

A material price escalation clause is the best method for allocating the risk of material price increases incurred as a result of tariffs or other external factors. Depending on how it is drafted, a material price escalation clause will allocate the risk between the contractor and owner. The following are several key components of a material price escalation clause:

• Identity of Materials Included: A material escalation clause may specify the materials that are covered under the clause. In this instance, a contractor should ensure that the materials that make up a significant portion of the contract are included.
• Identity of Triggering Events: The material escalation clause should specifically identify when it comes into effect (e.g., material prices for a particular material increase by 5% or more).
• Adjustment Mechanism: The material escalation clause should specify how the price adjustments will be calculated. This is commonly done through either (1) index-based adjustments (e.g., Consumer Price Index); or (2) cost-based adjustments based on the actual increased costs incurred by the contractor.
• Notification Requirements: The material price escalation clause should clearly specify how the contractor should notify the owner of the changes that trigger the material price escalation clause.

By clearly addressing material price escalation in the contract, contractors and owners can identify who bears the risk of material price escalation. These clauses can be tailored based on the needs of both parties and can allocate the risk to the owner, the contractor, or split the risk between them where material price escalations are split evenly or by a specified amount identified by the parties.

1. Force Majeure 

Many construction contracts contain a force majeure provision which will relieve a party of their contractual duties when performance has been prevented by a force beyond the contract. Whether tariffs would constitute a force majeure event depends on the language of the force majeure provision.

Force majeure provisions are narrowly construed by courts and typically will only be applicable if the specific event (e.g., tariffs) is identified in the provision. This is particularly important when the relief sought is avoidance of performance based on market fluctuation, because force majeure clauses are not intended to buffer a party against the normal risks of a contract. Because of this, force majeure clauses rarely entitle a party to additional compensation.

1. Contingencies

Many construction contracts include a contingency clause which allows the parties to increase the overall contract amount by the contingency amount when specified events occur. If not fully used during the course of the project, this contingency saving may be split between the contractor and the owner. By including tariffs as a contingency event, contractors and owners can split the risk of tariffs.

Conclusion

President Trump’s tariffs have highlighted the impacts of material price escalation on construction contracts; however, these issues should be addressed in all contracts because even without tariffs pricing can be impacted by supply shortages, high demand, or other issues expected and unexpected. By addressing material pricing fluctuations in the construction contract, contractors can ensure that they are protected and set themselves up for a profitable job. As with any project, you should always consult an experienced construction attorney to assist with any issues your company encounters.

 

This article is published in Smith Currie “Construction & Government Contract Law” newsletter November 2025.
This article is also published in ConstructionRisk Report, Vol. 27, No. 8 (December 2025).
Copyright 2025, ConstructionRisk, LLC               

Article 3

Homeowner’s judgment against Contractor Reversed because it failed to prove amount of its damages as of the date of the breach of contract

See similar articles: Damages

A homeowner filed suit against the contractor that constructed its home and was awarded damages by a trial court of $425,000. That judgment was reversed on appeal with the court holding that no testimony was presented by homeowner’s expert as to the amount of the damages of date of the breach but the expert only presented evidence of what the homeowner’s damages were as of the trail date which occurred about 6 years after the breach of contract.  Under the applicable state law, damages for breach of a construction contract based on defective work are calculated as of the date of the breach of contract. Because the homeowner failed here to establish the proper measure of damages, the court not only reversed the trial court judgment, but it also remanded the case with instructions to enter final judgment in favor of the contractor. Bandklayder Development, LLC v. Josheph Sabga, 406 So. 3d 265 (Florida, 2025).

The expert report was dated January 2022 and stated that the homeowner suffered damages of $322,000 as of that date, but he further testified that as of the trial date, the cost to complete the unfinished construction work had increased by 35% to become almost $436,000 due to an increase in construction costs.  He did not, however, testify to the amount of damages as of the date of the breach that occurred several years earlier.

As a general rule in construction defect cases, “the measure of damages is the reasonable cost of making the performed workconform to the contract.” [citation omitted]. “The purpose of compensation is to restore the injured party to the condition which he would have been in had the contract been performed.” [citation omitted].The court stated that: “It is well-established in Florida that damages for breach of a construction contract based on defective work arecalculated as of the date of the breach.”  The court further stated: “It is well-established in Florida that damages for breachof a construction contract based on defective work are calculated as of the date of the breach.” Thus, the homeowner was required to prove the damages as of the date of the breach and because that was not done, the appellate court held that it owner could recover no damages whatsoever.

Comment:  We have read several court decisions recently where a plaintiff proved it was damaged but failed to satisfy the court as to the dollar amount to which it was entitled.  The courts have held the plaintiff’s failure to prove damages means their suits must be dismissed and they cannot come back and try to prove the damages with different evidence or testimony.

 

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk Report, Vol. 27, No. 8 (December 2025).

Copyright 2025, ConstructionRisk, LLC