IACCM Contract Management Forum

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2019-04-09 17:39:14

Uncapped limitation of liability

I work with a Company that supplies products and services (medical equipment, chemicals, diagnostic solutions, procurement management for life science companies etc) to both private parties and government entities. Our company standard is to cap limitation of liability based on estimated annual revenue from a particular customer contract. However, the Company has carved out exceptions to certain low value contracts and to contracts with state and federal entities to allow an unlimited cap on liability. While this seems like a practical approach, I am not too sure if this is the best approach as I see the risk/reward to be disproportionate. i.e. large value deals have a cap while small value deals can expose the company to an unlimited liability. Do any of you follow a similar approach within your organisation? What risk do you see if we are to continue with this approach since the third party liability cannot be capped anyways and circumstances where the company may be exposed to liability is limited. Thank you
 •  Concentrix  •   2019-04-21 16:03:16
I agree with your thought Unlimited liability means Unlimited exposure irrespective of size of contract.
If there is no way to Limit your liability then atlast include a clause that defines a process of identifying liability. E.g If a Mistake happens by your employee due to some vulnerability in Client/Customer systems/process then is it only your fault or customer is also responsible for it ?.. If both parties agree to jointly decide on mechanism for fixing ownership of issue then you get a fair chance to defend yourself. Just my thoughts...
 •  Na  •   2019-04-22 16:27:39
Thank you for your response. Most of these happen to be government contracts where one is unable to propose any changes. Do organizations that work with government customers usually willing to undertake the risk of unlimited liability? I am also guessing that there may potentially be no risk that will require indemnification, in a product supply contract or am I underestimating?
 •  SPL  •   2019-08-20 13:39:18
Another option is to set a 'small contract cap' at a fixed monetary value. So the cap would be expressed as (for example) "The greater of $500,000 or 200% of the total contract value"
 •  NHP Electrical Engineering Products Pty Ltd  •   2019-09-06 05:22:23
Is there a "no consequential losses" clause within the contract? If so, the uncapped liability of small value contracts may not be too large of exposure when you consider the liability has to be directly related to the breach and would naturally occur as a result
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