Construction Contracts: The No Damages for Delay Clause
Owners routinely insert disclaimers and
limitations of liability clauses in contracts that may limit or bar a
contractor or subcontractor’s ability to collect additional compensation for
work performed because of unexpected conditions and delay. This article will
focus on one type of disclaimer - the “no damages for delay” clause.
Owners frequently insert no damages for delay provisions in construction contracts to prevent a contractor (and any subcontractors) from obtaining additional compensation for delays that have been experienced on a project. Under the typical no damages for delay clause, the contractor or subcontractor is entitled to additional time, but not compensation for extra costs, incurred as a result of delays. Such clauses can be effective whether the delay is caused by the owner, or by an act of God, such as a hurricane.
The standard no damages for delay clause typically provides something similar to the following:
“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.” - Werner Sabo, Legal Guide to AIA Documents, 2008 (5th ed.)
No damages for delay clauses are generally upheld in court. However, case law provides that there are certain circumstances that may allow a contractor or subcontractor to pursue delay damages despite the existence of a no damages for delay clause in the construction contract. For example, if an owner has acted in bad faith, defrauded the contractor, or actively interfered with the contractor’s ability to construct a project, then a no damages for delay provision will be deemed ineffective.
In Southern Gulf Utilities, Inc. v. Boca Ciega Sanitary District, a contractor sought delay damages from the owner for failure to obtain rights-of-way for the construction of the project. The contract between the owner and the contractor stated, in pertinent part, that “no claim whatsoever for damage by reason of any consequent delay or additional cost involved will be allowed.” The owner argued that this no damages for delay clause precluded the contractor from obtaining delay damages. The court held that the owner’s failure to obtain rights-of-way “transcended mere lethargy or bureaucratic bungling,” and the owner’s knowledge of the problem and willful refusal to obtain rights-of-way prevented it from hiding behind the no damages for delay provision contained in the contract. As a result, the court held that the contractor was entitled to seek delay damages despite the existence of the no damages for delay clause.
Similarly, if an owner states that a contractor will not be subject to the no damages for delay provisions, the owner cannot then seek to enforce the provision against the contractor. In Chicago College of Osteopathic Medicine v. George A. Fuller Co., the construction contract between the prime contractor and subcontractor contained a no damages for delay provision. The subcontractor incurred delays on the project due to the erratic scheduling by the prime contractor. Despite the existence of a no damages for delay clause in the contract, the prime contractor orally waived the provision and promised the subcontractor that it would receive payment for the delays. The court held that the prime contractor orally modified the contract and waived the no damages for delay provision even though the contract contained a provision which prohibited oral modifications.
Prior to performing work on a project, a contractor or subcontractor must scrutinize the terms of the construction contract. Often, the bid documents contain liability disclaimers such as a disclaimer for differing site conditions or a no damages for delay clause that may limit or bar a contractor or subcontractor’s entitlement to additional compensation. If a contractor or subcontractor is aware of these provisions prior to entering into the contract or performing work, they can understand the impact these provisions may have on their work and adjust their bids or work accordingly.
Owners frequently insert no damages for delay provisions in construction contracts to prevent a contractor (and any subcontractors) from obtaining additional compensation for delays that have been experienced on a project. Under the typical no damages for delay clause, the contractor or subcontractor is entitled to additional time, but not compensation for extra costs, incurred as a result of delays. Such clauses can be effective whether the delay is caused by the owner, or by an act of God, such as a hurricane.
The standard no damages for delay clause typically provides something similar to the following:
“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.” - Werner Sabo, Legal Guide to AIA Documents, 2008 (5th ed.)
Case Law on the Provision
The no damages for delay clause acts as a waiver of any additional compensation that the contractor or subcontractor may seek for delays on a project.No damages for delay clauses are generally upheld in court. However, case law provides that there are certain circumstances that may allow a contractor or subcontractor to pursue delay damages despite the existence of a no damages for delay clause in the construction contract. For example, if an owner has acted in bad faith, defrauded the contractor, or actively interfered with the contractor’s ability to construct a project, then a no damages for delay provision will be deemed ineffective.
In Southern Gulf Utilities, Inc. v. Boca Ciega Sanitary District, a contractor sought delay damages from the owner for failure to obtain rights-of-way for the construction of the project. The contract between the owner and the contractor stated, in pertinent part, that “no claim whatsoever for damage by reason of any consequent delay or additional cost involved will be allowed.” The owner argued that this no damages for delay clause precluded the contractor from obtaining delay damages. The court held that the owner’s failure to obtain rights-of-way “transcended mere lethargy or bureaucratic bungling,” and the owner’s knowledge of the problem and willful refusal to obtain rights-of-way prevented it from hiding behind the no damages for delay provision contained in the contract. As a result, the court held that the contractor was entitled to seek delay damages despite the existence of the no damages for delay clause.
Similarly, if an owner states that a contractor will not be subject to the no damages for delay provisions, the owner cannot then seek to enforce the provision against the contractor. In Chicago College of Osteopathic Medicine v. George A. Fuller Co., the construction contract between the prime contractor and subcontractor contained a no damages for delay provision. The subcontractor incurred delays on the project due to the erratic scheduling by the prime contractor. Despite the existence of a no damages for delay clause in the contract, the prime contractor orally waived the provision and promised the subcontractor that it would receive payment for the delays. The court held that the prime contractor orally modified the contract and waived the no damages for delay provision even though the contract contained a provision which prohibited oral modifications.
Prior to performing work on a project, a contractor or subcontractor must scrutinize the terms of the construction contract. Often, the bid documents contain liability disclaimers such as a disclaimer for differing site conditions or a no damages for delay clause that may limit or bar a contractor or subcontractor’s entitlement to additional compensation. If a contractor or subcontractor is aware of these provisions prior to entering into the contract or performing work, they can understand the impact these provisions may have on their work and adjust their bids or work accordingly.
Author's note:
The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation. Regulations and laws may vary depending on your location. Consult with a licensed attorney in your area if you wish to obtain legal advice and/or counsel for a particular legal issue.Looking for a reprint of this article?
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