I represent various industry players in construction contract negotiations and, invariably, at least one party wants a “waiver of consequential damages” clause in the agreement. Indeed, such a clause is part of many standard American Institute of Architects (AIA) contract documents. Notwithstanding, many construction professionals — and even some attorneys — do not know precisely what is being waived.

What are consequential damages, and how do they differ from direct damages? A federal district court in the Middle District of Florida recently answered that question in a dispute between an owner and its design professionals.

Before delving into the facts of the case, the reader needs to understand what a waiver of consequential damages clause looks like. In AIA Document B102-2017, Standard Form of Agreement Between Owner and Architect without a Predefined Scope of Architect’s Services, Section 4.1.3 provides: 

“The Architect and Owner waive consequential damages for claims, disputes, or other matters in question, arising out of or relating to this Agreement. This mutual waiver is applicable, without limitation, to all consequential damages due to either party’s termination of this Agreement, except as specifically provided in Section 5.7.”

Similarly, in an owner-contractor agreement, such as AIA Document A111-2021, Standard Form of Agreement Between Owner and Home Builder for Construction of a Single Family Home, Section 16.2, Claims for Consequential Damages, provides: 

“The Home Builder and Owner waive claims against each other for consequential damages arising out of or relating to the Contract. This mutual waiver includes (1) damages incurred by the Owner for rental expenses; for losses of use, income, profit, financing, business, and reputation; and for loss of management or employee productivity, or of the services of such persons; and (2) damages incurred by the Home Builder for principal office expenses including the compensation of personnel stationed there; for losses of financing, business, and reputation; and for loss of profit, except anticipated profit arising directly from the Work. This mutual waiver is applicable, without limitation, to all consequential damages due to either party’s termination in accordance with Article 15.”

Although the latter clause provides more detail — including some examples of consequential damages — both clauses serve to restrict the parties’ recovery. In Orlando Health, Inc. v. HKS Architects, Inc., No. 6:24-CV-693-JA-LHP, 2025 WL 1919349 (M.D. Fla. July 11, 2025), the federal district court examined the scope and enforceability of such a clause in the context of a dispute between an owner, its architect and the architect’s structural engineering subconsultant.

Orlando Health involved a breach-of-contract claim relating to the design and construction of a hospital in Lake Mary, Florida. Orlando Health, 2025 WL 1919349, at *1. The owner (Orlando Health) contracted with an architect (HKS Architects) to provide architectural and engineering services, including structural engineering, for the project. 

HKS entered into a subcontract with BBM Structural Engineers. As the project was being constructed, several structural design defects were discovered. Orlando Health, 2025 WL 1919349, at *1. The owner brought suit against its architect to recover the cost of these repairs, and HKS filed a third-party action against BBM, claiming that BBM was liable for the design errors.

HKS and BBM moved for summary judgment, arguing that the owner was seeking consequential damages — damages which it contractually waived in its agreement with HKS. Disagreeing that all of HKS’ damages were consequential, the court denied the motions for summary judgment. Orlando Health, 2025 WL 1919349, at *3.

Direct damages not waived by consequential damages waiver clause

The owner-HKS contract was AIA Document B101-2017, which included a contractual waiver of consequential damages similar to the one quoted above in B102-2017. Orlando Health, 2025 WL 1919349, at *2. In denying the motions for summary judgment, the court scrutinized the nature of the damages claimed by the owner. This included costs for repairing structural defects such as slab cracking, inadequate support for a cantilevered overhang and deficiently designed structural beams. Orlando Health, 2025 WL 1919349, at *2. 

In addition, the owner sought recovery for peer-review services for the entire building (necessitated by the design defects) and extended project management costs. Orlando Health, 2025 WL 1919349, at *3.

At the outset of its analysis, the court noted that the parties’ agreement did not define “consequential damages,” leaving the court to “fill in this definitional gap for them.” Orlando Health, 2025 WL 1919349, at *3. Since the court was unable to find any Florida cases directly on point, it had to “predict how the Supreme Court of Florida would resolve the issue.” Orlando Health, 2025 WL 1919349, at *7. 

Accordingly, the court held that the owner’s costs of remediation and repair were not waived as consequential damages under the owner-architect agreement. Instead, the court found that these costs were “direct, natural, logical, and necessary consequences of” HKS’s deficient plans (provided through the architect’s subconsultant, BBM). Orlando Health, 2025 WL 1919349, at *7 (citation omitted).

This holding makes sense when considering the distinction between direct and consequential damages. Direct damages naturally and necessarily flow from the breach itself. In contrast, consequential damages arise from special circumstances and are recoverable only if they were foreseeable, within the contemplation of the parties at the time of contracting and not expressly waived in the parties’ agreement. 

See, e.g., JH Kelly, LLC v. AECOM Tech. Servs., Inc., 660 F.Supp.3d 840, 848 (N.D. Cal. 2022) (distinguishing between consequential damages, such as lost profits on future projects, and direct damages, such as lost profits from a specified breach of a construction contract under California law).

Takeaways

While the Orlando Health case addressed the issue of direct versus consequential damages in a design professional agreement under Florida law, the principles espoused by the court apply to construction contracts in general, regardless of the jurisdiction. 

At the time of contracting, the owner is typically resistant to waiving consequential damages because they are more likely to sustain significant consequential damages than the design professional or general contractor. These latter parties, on the other hand, wish to limit their risk contractually, especially in light of the compensation they are to earn under their agreement with the owner. 

For these reasons, mutual waivers of consequential damages are relatively common in construction and design contracts. However, as the federal court in Orlando Health noted, not all damages are consequential. Even with an express contractual waiver, damages that may be classified as direct are fair game and should be considered part of the parties’ respective risk profiles.