Liability cap

In general the word liability refers to a responsibility being placed on someone, or something that places them at a disadvantage. The term liability has a number of more specific meanings, depending on the context in which it is used, such as a legal liability, being a legally-bound obligation to pay debts or fulfill other obligations, public liability, part of the law of tort focussing on civil wrongs, and financial liability or financial responsibilities.

A liability cap, is a mechanism to limit said responsibility. In general it is a contractual term, used in construction contracts (aswell as elsewhere), implemented through contract clauses, that set a maximum limit on the financial responsibility, or potential liability to another party in the case of disputes, breaches, or claims relating to a construction project. These caps generally encompass damages, losses, indemnity obligations, and other costs that may result from contract violations, negligence, or general mistakes.

The Office of Government Procurement Guidance note "Liability Caps: Application in the Public Works Contract" decribes the introduction of and reasoning behind the liability cap as being thus: 'Capping liability in a contract may offer entities a degree of assurance in performing the contract. It can enable entities to assess, with a greater degree of confidence, the level of risk of financial exposure associated with taking on the contract and make provision for taking it on. It may also increase competition and deliver better value for money outcomes for the party commissioning the contract."

"The introduction of Liability Caps into the public works contract PW-CF1 to PW-CF8 falls out of an ongoing review of the Capital Works Management Framework, and seeks to improve the overall risk/reward balance under the public works contract. It also seeks to encourage greater participation for the award of public works contracts and, in particular, facilitate the participation of small to medium enterprises in tendering opportunities."

"The introduction of Liability Caps in the public works contract suite follows the introduction of Liability Caps in the Standard Conditions of Engagement for Consultancy Services, both Technical and Archaeological on 31st March 2023. Both sets of contractual amendments complement one another and form part of a combined effort to review the risk/reward balance in conducting a public sector capital project. Note: It should be noted that the Liability Cap does not limit the liability of a Contractor to third parties."

The extent of liability caps can vary based on the terms agreed upon by the parties at the outset of the contract, the legal framework in which the project is occurring, aswell as specific roles and the jurisdiction residing over construction contract. In general caps can be applied to a vriety of aspects and as such one miht consider a number of different types of caps seen in the construction industry such as:

• Joint and several liabilities that allocates liability between multiple parties, for the relevant part of the total. See also the article: Joint and several liability in building design and construction contracts.
• An overall liability cap can set a maximum limit on the total liability of one party for all claims that might arise from a project.
• Cap per occurrence: Limits the liability of a party for each separate incident or occurrence, thereby preventing cumulative exposure from multiple claims.
• Cap per contract phase: Establishes different liability limits for various project phases (e.g., design, construction, post-construction), reflecting the differing risks associated with each phase.

[edit] Related articles on Designing Buildings

• Addendum.
• Agreement.
• Architects liability.
• Bespoke construction contract.
• Building safety wiki.
• Concession Contracts Regulations.
• Construction contractor.
• Core clause.
• Contingent liabilities.
• Contract documents for construction.
• Contractual chain.
• Contractual obligation.
• Contractual right.
• Construction contract.
• Defects.
• Defects liability period.
• Employers’ liability insurance.
• Hybrid construction contract.
• Intermediate building contract
• Joint and several liability.
• Liability for building design.
• Memorandum of understanding.
• Model Services Contract MSC.
• Modifying clauses in standard forms of construction contract.
• Onerous contract.
• Reserved contract.
• Strict liability.
• Vicarious liability