Stephen M. Rymal, P.E., Esq.
“No damage for delay” clauses continue to divide the country and the courts on their application and interpretation. Although owners and prime contractors insist on enforceability, the net result typically shifts the risk onto the party least likely to negotiate fair limits, to control events on the jobsite and absorb the ultimate cost. Nevertheless, these clauses are found in most construction contracts in some form or another.
Despite the fact that a majority of jurisdictions have recognized and enforced these clauses, courts strictly construe exculpatory clauses such as the “no damage for delay” clause against the drafter in order to avoid a forfeiture or inequity because it shifts risk onto less fortunately situated parties. As a result of this strict interpretation approach, courts have carved out several exceptions depending upon the jurisdiction:
- Active interference – see Blake Constr. Co, Inc. v. C.J. Coakley Co., Inc., 431 A.2d 569 (D.C. 1981)
- Delays or costs not covered by the express terms of the clause such as disruption, inefficiency, loss of productivity, “hindrance” or direct obstruction of the work, actual or constructive acceleration, and improper work sequencing, etc… see Cleveland Construction, Inc. v. Ohio Public Employees Retirement System, 2008 Ohio 1630 (10th Dist. 2008)
- Unreasonable delay meaning not just minor or ordinary delay but delay that can be construed as abandonment of the work
- Delays not contemplated by the parties – The Committee on Pattern Jury Instructions of the Association of the Supreme Court of New York recently issued PJI 4:20.3 which instructs the jury to “consider the terms of the contract… and the evidence about what the parties did foresee or anticipate and reasonably could have foreseen or anticipated when they entered into the contract.”
- Fraud – the traditional definition of fraud is a misrepresentation of a fact, known to be untrue by the party making it, with the intention of inducing action or inaction which is relied upon by another whom, as a result of such reliance, suffers injury. A broader definition would be acts, omissions and concealments involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in damage to another, or by which an undue or unconscientious advantage is taken.
- Bad faith, willful, malicious, capricious or grossly negligent conduct.
- “Cardinal” change in the scope or character of the work
- First to breach defense, i.e. if the owner breaches its own contract first then the owner is precluded from relying on exculpatory provisions in the contract
- The argument that a “no damage for delay” clause is irreconcilable with a “time is of the essence” clause and neither clause is therefore enforceable
- Inconsistency with other contract provisions such as “liquidated damages”, “changes”, “differing site conditions”, “compensable and non-compensable time extensions”, “time and material” , etc..
As a final thought, parties should consider the forum in which they find themselves. For example, if you are in full litigation in either federal or state court, then the enforceability of the clause and the exceptions thereto are the key issue to be presented and argued. However, if you are in mediation, then settlement is the prime focus of the mediator. The mediator is less likely to be concerned with whether or not the clause is enforceable except as leverage to keep all the parties involved in the settlement. And finally, arbitration is the wild card. Arbitrators can decide the issue of enforceability rightly or wrongly under appropriate state or federal law without either party having the right to appeal that decision.
MDC Systems® has been evaluating and analyzing these types of construction contract schedule and cost issues for over forty years and has developed a wealth of experience and insight in the methods and procedures to both assert and defend against claims resulting from these types of contract clauses. If your project profitability may turn on the application and interpretation of these clauses and their associated schedules do not hesitate to contact MDC Systems®.