Limitation of Liability Clause

A limitation of liability clause is a contractual provision that establishes a predetermined financial cap on a contractor's responsibility. CanadaBuys defines limitation of liability as an establishment by contract of a predetermined financial cap to limit the responsibility of the contractor. CanadaBuys buyer guidance on contractor liability sets out how federal buyers approach it.

In Canadian federal procurement, the clause belongs to the wider framework of limitation of contractor liability and indemnification. Related expressions include exclusion of liability, exemption of liability and risk avoidance. All of them allocate or shift legal risk between the buyer and the supplier by agreement, and the Treasury Board of Canada Secretariat treats them as tools for managing procurement risk.

How the cap is set

The cap is not a single fixed figure. According to CanadaBuys, the applicable liability amount may be the contract price at the time damage occurs, or a predetermined amount established by the relevant commodity grouping. A supplier therefore needs to read the draft contract to learn which approach applies to the requirement being bid.

What federal buyers must do before limiting liability

Canada does not limit contractor liability by default. The Directive on the Management of Procurement requires contracting authorities to complete a risk assessment and consult legal services before they seek to limit contractor liability or indemnify a contractor. When Canada decides to limit liability, buyers must show that procurement risks were analyzed and that the limitation adequately protects Canada.

The timing is also set by policy. Decisions on clauses that limit liability or indemnify contractors should be made before the RFP is released, and no later than bid closing. The Treasury Board policy text sets out this expectation.

Where the clause appears in federal contracting

The former Standard Acquisition Clauses and Conditions (SACC) Manual included a section titled "N. Limitation of Liability," with clause reference N0000. The SACC Manual on CanadaBuys is archived and has not been maintained since June 2023, but the reference remains familiar to many suppliers.

• Contracting authorities may use approved PSPC or Shared Services Canada commodity groupings, including the predetermined clauses, risk assessments and financial caps, without separate Treasury Board approval when nothing is changed or substituted.
• Treasury Board guidance distinguishes between a PSPC limitation of liability clause and a departmental clause. In some cases departmental use requires Treasury Board approval, and if approval is not obtained the contract may contain no limitation of liability clause.
• The mandatory procedures allow standard commercial limitation of liability terms for certain low-risk, low-dollar-value goods and services, including subscriptions, software, mobile applications, cloud services and open-source software, where appropriate.
• Policy also permits contracting authorities to omit the clause and leave liability to common or civil law.

These rules are set out in the Treasury Board mandatory procedures.

Similar provisions in NATO procurement

NATO procurement documents contain functionally similar provisions. Several Allied Command Transformation invitations for bid include clauses stating that the contractor will not be liable for specified consequential damages, as in this NATO ACT invitation for bid. Suppliers working across Canadian and NATO opportunities should read each solicitation's own wording.

What it means for a supplier bidding on Canadian public contracts

Review the solicitation and draft contract to find out whether a liability cap, indemnity, exclusion of consequential damages or other risk-allocation term applies. Price and manage the work against the stated cap and exclusions.

Do not assume liability is capped. A federal contract can be silent on the subject, in which case common or civil law determines liability. If a provision is unacceptable, raise it through the solicitation's formal question process before bid closing, since federal policy expects these decisions to be settled by that point.