The Procurement Glossary » Limitation of Liability

Limitation of Liability

Contracts & Legal

Definition

A clause capping the amount or types of loss a party can be held liable for under a contract.

Explanation

Liability caps (often a multiple of contract value) and exclusions (e.g. of indirect loss) protect both sides from open-ended exposure. The buyer wants enough protection to cover real risk; the supplier wants a manageable cap. It is a core negotiation point.

Example

Liability is capped at 12 months' fees, but data-breach and IP indemnities sit outside the cap.

Related terms

• Indemnity — A contractual promise by one party to cover specified losses or liabilities suffered by the other.
• Warranty — A supplier's assurance that goods or services will meet defined standards, with a remedy if they do not.
• Terms and Conditions (T&Cs) — The standard clauses governing a transaction or relationship, covering rights, obligations, liabilities and remedies.
• Risk Allocation — The contractual assignment of specific risks to whichever party is best placed to manage them.

Frequently Asked Questions

What is Limitation of Liability?

A clause capping the amount or types of loss a party can be held liable for under a contract. Liability caps (often a multiple of contract value) and exclusions (e.g. of indirect loss) protect both sides from open-ended exposure. The buyer wants enough protection to cover real risk; the supplier wants a manageable cap. It is a core negotiation point.

Can you give an example of Limitation of Liability?

Liability is capped at 12 months' fees, but data-breach and IP indemnities sit outside the cap.

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