Complexities of Consequential Damage Foreseeability with Construction Contracts

• Pages: 25-52
• Date: 01 January 2026
• Published date: 01 January 2026
• Author: Jeffrey P. Aiken,Christian Atteberry
• Subject Matter: Derecho Público y Administrativo

Published in The Construction Lawyer Volume 45, Number 1, ©2026 by the American Bar Association. Reproduced with

permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any

means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

Forum on Construction Law The Construction Lawyer Winter 2026

25

Complexities of Consequential Damage Foreseeability with

Construction Contracts

By Jeffrey P. Aiken and Christian Atteberry

Jeffrey P. Aiken, J.D., is a recently retired adjunct professor of construction law at the University of

Wisconsin Law School and School of Engineering, having practiced for over 40 years in the construction

field.

Christian Atteberry, J.D., is a recent graduate of the University of Wisconsin Law School.

The authors acknowledge and thank Brian O. Shea of Varela, Lee, Metz & Guarino, LLP, in McLean,

Virginia, for his assistance in finalizing this article and his contributions.

This article is intended solely for use by qualified legal counsel and should not be relied upon as an

accurate statement of applicable law in any given jurisdiction except to the extent in conformity with such

counsel’s own legal research and analysis.

Introduction

“The relationships involved in construction contracts have long posed a unique problem in the law of

contracts.”1 This is due, in no small part, to the nature of construction contracts—specifically, the reality

that with most large construction projects, some terms of the contract must change following the initial

entry of the relationship. As this article explains, it is this potential that gums up the works when it comes

to determining foreseeability and, ultimately, the recoverability of consequential damages:

Unlike other contract settings, in construction projects, changes are often ordered after the award of

a contract. “Design may prove to be inadequate. Methods specified become undesirable. Materials

designated become scarce or excessively costly. From the owner’s planning standpoint, program or

budget may change. Natural events may occur that necessitate changes. For any of many reasons it

often becomes necessary to direct changes after the contract has been awarded to the contractor.”2

. . . [E]very project of any significance (and many minor projects as well) will require changes to the

work and, thus, to the price and time of performance as well.3

In general, absent contractual authorization (i.e., a changes clause), an owner is not entitled to change

a contract to address practical difficulties that may arise after it is entered.4 A “changed” contract is a

new contract. Moreover, even with a changes clause,5 the owner will be restricted to changes within the

original scope of the contract.6

But again, the daily reality is that construction projects, and the corresponding contracts, do change,

either expressly (i.e., through a written change order) or constructively through changed work

requirements.7 Moreover, changes to a construction contract often result in claims for damages where

compensation may be justified, with some claims being for direct damages8 and other claims being for

more remote or consequential damages.9

Published in The Construction Lawyer Volume 45, Number 1, ©2026 by the American Bar Association. Reproduced with

permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any

means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

Forum on Construction Law The Construction Lawyer Winter 2026

26

As a general principle, to recover either direct or consequential damages for breach of contract, the

claimed damages must be foreseeable at the time of entering the contract.10 Almost by definition, direct

damages will be foreseeable upon entering the contract; however, the same cannot be said of consequential

damages. While not necessarily different from the general requirement for foreseeability, a rule has been

commonly recognized as though specific to consequential damages: namely, that consequential damages

(a/k/a “consequentials”) must be reasonably foreseeable at the time of entering the contract.11 This

is straightforward enough but not so simple to apply. Is the time of entry into the contract the stated

effective date or the date the last party signs it? Also, for purposes of determining the foreseeability of

consequential damages, what happens if a project achieves partial performance without a signed written

contract?

Although a large number of standard form construction contracts contain an express waiver of

consequential damages,12 such a provision is not universal. Owners typically want to preserve the right

to recover consequential damages by ensuring there is no direct or indirect waiver of these claims in

their contract.13 This is because a failure to complete a project by its target completion date can cause

significant losses in, among other things, rental income and project carrying costs. Contractors, on the

other hand, often strive to have such a provision excluded because the scope of potential damage liability

could result in an uninsurable loss.

This article explores the various components of foreseeability,14 as well as the impact contract changes

may or should have on the ability to recover consequentials—a determination that, at a trial, is generally

assigned to the jury with little guidance as to how such a determination should be made.15 There is little

uniformity in judicial formulations of foreseeability—beyond requiring that foreseeability be measured

at the time of entering the contract.16 However, various jurisdictions ignore many of these issues by

simply characterizing consequential damages as “losses that are the natural and probable results of the

breach”17 or “those additional damages that were contemplated by both parties at the time they made the

contract.”18 At a jury trial, it is then up to the jury to figure out what this means.

In addition to discussing the various components, and sometimes competing interpretations, of

foreseeability, this article argues that the current approach to determining foreseeability is flawed. An

instruction stating that consequential damages are “losses that are the natural and probable results of

a breach” is impossible for a jury to apply with any degree of reliability. Instead, this article argues for

an alternative approach to determining foreseeability, and to address current deficiencies, in the form of

a special verdict sheet with specific questions. Finally, this article concludes with recommendations for

contractor’s counsel, together with a scenario flowchart and accompanying analysis.

The Major Foreseeability Approaches

The Hadley Foreseeability Test versus the “Tacit Agreement” Test

Any analysis of foreseeability, and the issues surrounding foreseeability, must start with the seminal

decision in Hadley v. Baxendale.19 In Hadley, a mill owner failed to inform its insurance carrier of the

significance of a broken crankshaft to the mill’s operation. As a result of this failure to inform, both

parties, in eect, were precluded from pricing in the risk of lost mill profits stemming from a broken

crankshaft. As a result, the court precluded a damages award.20

It should be noted that the Hadley distinction between direct and consequential damages is framed as a

disjunctive: namely, the damage must either arise naturally from the breach or reasonably be within the

contemplation of both parties at the time of making the contract.21 While further guidelines were not

prescribed for how the latter should be determined, the court did lay out the underlying rationale for a