Oregon Construction Contractors (CCB) Practice Test

What refers to indirect costs incurred by the non-breaching party?

1. Direct damages

2. Consequential damages

3. Punitive damages

4. Actual damages

The correct answer is: Consequential damages

The term that refers to indirect costs incurred by the non-breaching party is consequential damages. These damages cover losses that do not flow directly from the breach of a contract but occur as a secondary effect of the breach. For instance, if a contractor fails to complete a project on time, the property owner might incur additional costs, such as lost profits from diminishing rental income or the expense of finding alternative accommodations. Consequential damages are meant to compensate the affected party for losses that were a foreseeable result of the breach, thereby recognizing the broader impact of the breach on their circumstances. This distinguishes them from direct damages, which are the immediate and direct losses that stem directly from the breach, such as the cost of repairing or replacing substandard work. It's also important to note that punitive damages are not related to the non-breaching party's costs; rather, they serve as a punishment for wrongdoing and are not typically awarded in contract disputes. Actual damages is a broader term that encompasses both direct and consequential damages but does not specifically highlight the indirect nature tied to consequential damages.