One of the questions on a practice exam was about examples of Consequential Damages. One of the answers I chose and got wrong was “The contractor fails to complete the job and the owner incurs additional cost to complete work.” I understand the definition of Consequential Damages are damages that flow from a failure to meet contractual obligations. Isn’t it an contractual obligation for the contractor to complete the work?
You’re not wrong that a contractual obligation exists for the contractor to complete the job. In this situation, however, additional cost for the completion of the work isn’t an indirect expense, but, rather, a direct expense. The additional cost is directly related to getting the building constructed.
Consequential damages refers to indirect expenses… things such as loss of use, income, profit, reputation, etc. Having to incur extra expenses because the work wasn’t finished is a direct expense, related directly to getting the building built.
Hope this helps!
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Wouldn’t “Non-conforming work” be a direct expense?
Hi @fletch30 !
I would say that non-conforming work performed by the contractor would be a direct expense because the expenses to correct the non-conforming work mainly include labor and material.
Thanks,
Rebecca