Liability allocation is one of the places where a federal subcontract can differ sharply from the prime contract. A prime may face a particular Government remedy but ask the subcontractor to accept uncapped private liability for a much wider set of losses.
The review should therefore map the cap and every exception to it across the whole subcontract.
Federal service contracts have a specific limitation clause
FAR 52.246-25 limits certain contractor liability for loss of or damage to Government property occurring after Government acceptance of services and resulting from defects or deficiencies, subject to stated exceptions. It is not a general cap on every category of contractor liability.
Official source: FAR 52.246-25 — Limitation of Liability—Services.
A private subcontract cap must be read across the agreement
- Is the cap tied to subcontract value, fees paid, insurance limits, or another amount?
- Does it apply to both parties or only the subcontractor?
- Are indemnity, confidentiality, data rights, cyber, IP, delay, or warranty claims carved out?
- Are consequential, special, or indirect damages waived separately?
- Do flowdowns override the negotiated cap through an order-of-precedence clause?
Insurance is not the same as a liability cap
A requirement to carry a stated insurance limit does not by itself cap contractual liability at that amount. If the business expects insurance to fund a particular risk, confirm that the policy actually responds to that obligation and that the contract does not create exclusions or uninsured commitments.
Look for hidden uncapped pathways
Broad indemnity and duty-to-defend clauses, liquidated damages, data breach costs, reprocurement costs, and repeated warranty obligations can create exposure outside a headline cap. A useful review builds one liability map rather than reading each clause independently.