In recent years, design professionals have been inserting provisions limiting their monetary liability if they are found liable or responsible for a professional error. Such provisions have also been used by manufacturers.

In the design field, limitation of liability provisions originated in two separate problems. First, some engineers work on massive projects for which millions, if not billions of dollars worth of damages could be incurred by the owner due to a professional error. For example, in the electric utility industry, an error by an engineer or manufacturer could result in the failure to complete a power plant on time or in the need to take a plant off line. Under such circumstances, the utility may have to buy power from another utility, which could cost millions of dollars. Because of this exposure, both design professionals and manufacturers in that industry commonly insert provisions stating that they will not be liable for "consequential damages."

Second, the fee received by the design professional may be miniscule compared to the amount of damage which may result from his error. As an example, a structural engineer working as a consultant for either the architect or the client may receive only a few thousand dollars to structurally design a building which may cost several million dollars to construct. A design error by the engineer could result in hundreds of thousands of dollars worth of corrective work. Since there is no relationship between the fee received by the engineer and the potential exposure, the engineer prefers to limit his liability to some specific amount of his fee.

The typical limitation of liability provision states that the design professional shall not be liable for consequential or incidental damages. A consequential damage could be the owner's loss of profit due to a delay in completing the project. An incidental damage could be the expenses incurred by the owner in retaining consultants to investigate alleged errors or omissions.

Besides attempting to limit their liability to the fee or a percentage of the fee, some design professionals are attempting to limit their liability to the cost of redoing deficient plans and specifications. In other instances, they are attempting to limit their liability to the cost or a percentage of the cost of corrective work.

Obviously, the exact limitation of liability provision to be used in a professional services agreement depends upon several factors. First, it depends upon the risks involved. Second, the client's bargaining power may make it very difficult for a design professional even to have such a provision. Third, the attorneys for both the client and the engineer will determine in part the breadth of the limitation of liability clause.

Although a limitation of liability provision may be effective against the client, it cannot be used against third parties, who ordinarily are not a party to the professional services agreement.