Construction contracts often contain “no damages for delay” clauses, which prevent a contractor or subcontractor from recovering delay damages from a property owner or general contractor. Whether, and to what extent, parties to a contract can enforce these clauses depends on the contract’s language and state law.
Limited remedies for delays
By denying a contractor the right to recover monetary damages for delays, a no damages for delay clause essentially limits the contractor’s remedy to an extension of time to complete the work. These clauses are sometimes drafted to include no extension even when the delay is beyond the contractor’s control.
Thus, when a contractor’s work is delayed through no fault of its own (and no exceptions apply), it can’t obtain compensation for the resulting costs. These costs can include increased bond or insurance premiums, extra supervision costs, additional equipment or utility costs, and higher home office overhead. Despite these consequences, no damages for delay clauses are valid and enforceable in most states, provided their language is clear and unambiguous.
Exceptions may apply
The existence of a no damages for delay clause doesn’t mean that a contractor can’t recover delay damages under any circumstances. First, it depends on the contract’s language. Some contracts permit a contractor to recover damages for delays that are within the control of the owner or general contractor.
In addition, many states provide court-created exceptions. Laws vary from state to state, but many states have exceptions for delays not contemplated by the parties, and delays so unreasonable that they constitute abandonment of the contract. Other common exceptions include delays caused by the other party’s:
- Bad faith or willful, malicious or grossly negligent conduct,
- Breach of a fundamental contractual obligation, or
- Active interference.
Often, in litigation, a critical issue is the meaning of “active interference.”
Case in point
In C&H Electric, Inc. v. Town of Bethel, the town hired C&H to do electrical work in connection with a school renovation and expansion. The town indicated that certain asbestos abatement work would be completed before construction began, but it moved forward with the construction, even though only 70% of the asbestos abatement work was completed. This interfered with C&H’s work, and C&H sued to recover delay damages.
The contract contained a no damages for delay clause that expressly excluded delays caused by the town’s active interference. The Connecticut Supreme Court agreed with C&H that establishing active interference doesn’t require a showing of bad faith or gross negligence. Rather, C&H merely needed to show that the town had committed some “affirmative, willful act that unreasonably interfered with [C&H’s] work.” In this case, the Court rejected C&H’s claim because it failed to present evidence that town representatives “actually knew that the unfinished abatement work would interfere with the plaintiff’s work.”
To increase your chances of recovering delay damages, review no damages for delay clauses carefully, understand any relevant state law exceptions and attempt to negotiate more favorable terms. By keeping thorough, accurate records of all project delays and documenting all communications with the owner or general contractor, you’ll be prepared in the event of litigation.
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