No Damage for Delay – New Spin on Standard Clause?
As we’ve all heard, “time is money,” and in the construction contracts, more importantly – “time is of the essence.” Time and money are vitally important to all parties on any construction project, so the ability of one party to force upon another a contract clause that removes the ability to recover money for lost time sets the stage for a constant and usually expensive fight; a fight in which the imposed-upon party may suffer significant financial losses.
Owners generally benefit most from a no damage with delay clause, but contractors who negotiate flow-down provisions, or independent no damages for delay clauses, with subcontractors and other lower-tier parties can also use the clause to their benefit. This article is not to debate which party is the best or “right” party to bear that loss, however an interesting case from outside of Texas has shed some possible light on recovery options in the event of a no damages for delay clause fight – whether it be in the negotiation process or the litigation stage.
First, as a reminder, a no damage with delay clause typically allows a contractor an extension of time as an “exclusive remedy” for delays, and bars the contractor (or subcontractor if it is a subcontract agreement) recovery of any financial costs or damages due to delays. Example of such a clause states:
- The Contractor agrees to make no claim for damages for delay in the performance of this contract occasioned by any act or omission to act of the [Owner] or any of its representatives, and agrees that any such claim shall be fully compensated for by an extension of time to complete performance of the work as provided herein.
- The Owner shall not be liable to the Contractor and/or any Subcontractor for claims or damages of any nature caused by or arising out of delays. The sole remedy against the Owner for delays shall be the allowance of additional time for completion of the Work, the amount of which shall be subject to the claims procedure set forth in the General Conditions.
Most standard industry forms, like the American Institute of Architects (AIA), do not contain explicit no damage with delay clauses.
However, when revised by savvy construction parties, this clause is often added as revised language to the AIA Contract Documents and is also in almost every owner-provided form as well.
Some states have legislation against no damage with delay clauses, however Texas courts generally enforce these provisions.
This is not intended to review the legal validity or exceptions to a no damage with delay clause, however, there are certain exceptions if the delay:
- was not intended or contemplated by the parties to be within the purview of the provision;
- resulted from fraud, misrepresentation, or other bad faith on the part of one seeking the benefit of the provision;
- has extended for such an unreasonable length of time that the party delayed would have been justified in abandoning the contract;
- is not within the specifically enumerated delays to which the clause applies; and
- was based upon active interference, or other wrongful conduct including arbitrary and capricious acts, willful and unreasoning actions, without due consideration, and in disregard of the rights of other parties.
The issue for discussion is whether these clauses, which provide a time extension as an exclusive remedy, also bar claims for acceleration, inefficiencies, sequencing or other types of delay damages that might be classified or strictly defined as “delays.” A recent case from outside of Texas has provided some new insight on this often-talked about and negotiated clause.
In a 2017 Massachusetts case, the no damage with delay clause in a subcontract provided, in pertinent part, “The Subcontractor agrees that it shall have no claim for money damages or additional compensation for delay no matter who caused [but shall instead] be entitled only to an extension of time for performance.” The Court held the no damage with delay clause was inapplicable for two reasons. First, the court found that the subcontractor was not seeking damages because it had been delayed, but rather because it had been forced to increase its workforce due to the compression of the schedule occasioned by the general contractor’s breaches. As the court explained, since the subcontractor’s work was completed on time, these breaches didn’t affect the subcontractor’s ability to complete its work on time (a “delay”), but rather its ability to complete its work efficiently and on budget (i.e., its’ productivity). The no damages for delay clause, which the court was required to strictly construe, did not expressly apply to this situation.
The Court focused on the meaning of “delay damages.” The subcontractor argued delay damages means, “the cost of an idle workforce.” The general contractor argued delay damages encompassed all damages “caused by delays.” The subcontractor won. Further, since the work was completed on time, the “no damages” for delay clause would have been inapplicable for the reason that the general contractor refused to grant time extensions operated to deprive the subcontractor of its sole remedy under the clause. This was a “material breach” of the
clause that prevented them from enforcing it against the subcontractor.
So, the focus is again on the specific words (and definitions) in your contract. A properly drafted no damage with delay clause avoids all such nuances that caused the Massachusetts court to rule in favor of the subcontractor. For example, a comprehensive delay clause would include a broad variety of damages, including delay, lost productivity, impact damages, increased costs to perform, interferences, hindrances, etc. A less comprehensive clause would include some but not all of the foregoing.
No damage with delay clauses play a vital role in construction projects. They are not boilerplate language that should be glossed over. Unquestionably, no damage with delay clauses generate some very “robust” contract negotiations on most construction contracts. Contract drafters and those who negotiate them for their respective clients must ensure the precise language they use effectively accomplishes their objectives.
Sophisticated construction parties and their counsel are getting more and more creative by including very broad no damage with delay provisions, so it is important to be aware of some practical drafting tips. Failure to do so can lead to significant losses for delay damages and
inability to recover those financial losses. Proceed with caution (and the advice of your construction attorney).
About the Author
Michael “Mike” Cortez is a Shareholder in the Houston office of Andrews Myers.
This article first appeared in the AM Monthly Law Alert. Read more at andrewsmyers.com.
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