A proposal to limit liability via a tender or during contract negotiations is an example of a strategy to transfer risk. The CTC WebSite includes a number of publications which provide help on managing risk. Limitation of Liability as a Contingent Liability A limitation of liability provision gives rise to a contingent liability because it involves the Commonwealth undertaking to accept future losses above a financial threshold if particular circumstances occur. Effectively, a limitation of liability has a similar effect to an indemnity, and should be treated in a similar manner. Information relating to contingent liabilities should be reported in Agencies' annual financial statements in accordance with the Financial Statement Guidelines.
Contingent liabilities involve future payment or losses if particular circumstances occur.
They require management in a different manner to other liabilities. For example, if a contractor breaches the contract, and the agency suffers loss beyond the financial threshold detailed in the limitation of liability clause, a contingent liability is realised. Further information on the management of contingent liabilities is provided at the end of this toolkit. Advantages and Disadvantages of Limitation of Liability Advantages Agencies may be able to negotiate a more favourable contract price because the agency is accepting some of the contractor's responsibility in relation to risk. The inclusion of a limitation of liability clause may enable the agency to use the best qualified or best value for money contractor which may reduce the overall risk that the contract will not achieve agency objectives.