1. INTRODUCTION¹

Construction projects involve risks. A well-structured construction contract allocates certain risks to the party that is best able to control those risks.

Delay is a common risk that construction contracts allocate. A delay may increase costs for owners, contractors, and subcontractors to complete a project. Allocation of delay risk typically considers responsibility for a delay, based on three categories of delay:

• Non-Excusable Delay. Contractor-caused delay is a risk allocated to the contractor. Typically, a contractor is not entitled to an extension of time to complete a project, bears its own delay costs, and is responsible for the owner’s delay costs (either actual delay costs or liquidated damages).


• Excusable or Non-Compensable Delay. Most contracts allocate a force-majeure delay such as abnormal weather or an act of God to grant a time extension, but neither party is responsible to the other party for any delay costs.²


• Compensable Delay. Most contracts allocate delay responsibility to the owner if it causes a compensable delay that increases the contractor’s costs and time of performance. In these cases, the contractor receives both a time extension and compensation for its increased time-related costs due to the owner’s (or its agent’s) delay.

A construction contract expressly states parties’ duties and obligations, but there are also implied duties and obligations, such as the duty to cooperate and not hinder the performance of other contracting parties. These expressed and implied duties shift greater liability onto the owner. If the owner does not perform its duties and obligations in a timely manner and, thus, delays the contractor’s performance, the contractor may incur increased time-related costs. Owners frequently seek to include “no damages for delay” clauses in construction contracts to avoid being responsible for contractors’ increased time-related costs.

A no damages for delay clause attempts to prevent a contractor from receiving time-related damages from an owner as a result of delay, even if the delay has been caused by the owner. Similarly, the clause may also be used to attempt to prevent a subcontractor from receiving time-related damages from a contractor, even if the delay has been caused by the contractor. The no damages for delay clause applies to delays that affect the contractor’s cost of performance, and usually not the owner’s time-related costs resulting from delay, and usually provides that the contractor is only entitled to a time extension for delays to its work.³ A no damages for delay clause may also apply to delays to the notice to proceed date.⁴

The intent of a no damages for delay clause is clear: the owner wants to allocate a specific financial risk to the contractor. Unless the owner directs the contractor to accelerate to overcome delay, by inserting a no damages for delay clause in the contract, the owner intends to avoid paying for delays and is willing to accept late project completion if it is responsible for delays.

From the standpoint of risk assessment, such a no damages for delay clause should alert a bidding contractor that serious financial trouble may lie ahead. Most states usually enforce the clause with certain exceptions. Exceptional states include Colorado, Louisiana, North Carolina, Ohio, Missouri (in public contracts), New Jersey (related to negligence, bad faith, active interference, or other tortious conduct by a public entity), Oregon (if the delay is caused by acts or omissions of the contracting agent or persons acting therefor), Virginia (where such delay is “unreasonable”), Washington (in which the clause has been barred), and Indiana (where such a clause is prohibited in the case of unforeseen conditions encountered during a project).⁵

In Wells Brothers Co. v. United States, the Supreme Court observed:

Men who take $1,000,000 contracts for government buildings are neither unsophisticated nor careless. Inexperience and inattention are more likely to be found in other panics to such contracts than the contractors, and the presumption is obvious and strong that the men signing such a contract as we have here protected themselves against such delays as are complained of by the higher price extended for the work.⁶

In effect, the Supreme Court recognized the no damages for delay clause as a risk allocation device and that the owner may have paid in the contract price to use such a clause in the contract.

Contractors argue that such clauses result in higher bids to cover for the potential for uncompensated owner-caused delays. If a contract also includes liquidated damages provisions, a contractor may be assessed liquidated damages for contractor-caused delay but not be able to recover its time-related costs resulting from owner-caused delays. Owners may also use no damages for delay clauses to prevent one prime contractor from recovering against the owner for delays that other prime contractors caused.⁷

Topics discussed in the following sections include:

• No damages for delay clause examples
• Exceptions in the enforcement of no damages for delay clauses
• The no damages for delay clause and acceleration
• Enforceability of no damages for delay clauses
• Characterizing delay damages
• State-by-state survey
• Use in international construction contracts

2. NO DAMAGES FOR DELAY CLAUSE EXAMPLES

The specific language of a no damages for delay clause may vary, but the clause typically provides that a contractor has no claim or cause of action against an owner for delay and/or that the contractor’s sole remedy for delay caused by the owner is an adjustment in the contract time. The clause may include all-encompassing language, such as “for any and all causes.”⁸

Examples of a no damages for delay clause are shown below:

Except as provided elsewhere in this Agreement, the Owner shall not be obligated or liable to the Contractor for, and the Contractor hereby expressly waives, any claims against the Owner on account of any damages, costs or expenses of any nature which the Contractor may incur as a result of any delay which may occur, regardless of its cause. It is understood and agreed that the Contractor’s sole and exclusive remedy in the event of an excusable delay for which Contractor is entitled to an extension of time shall be an extension of the Scheduled Mechanical Completion Date.

In the event the contractor is delayed in the prosecution of its work by an act, omission, neglect, or default of the owner, the contractor agrees to make no claim for damage for delay in the performance of this contract and that any such claim shall be fully compensated for by an extension of time to complete performance.

In the same contract, however, the changes clause typically provides the contractor the right to request increased compensation for costs due to delay resulting from changes or other events. Therefore, when the contract is read in its entirety, a no damages for delay clause that may limit or deny any relief for delay damages may be offset by other clauses that provide specific relief for delay damages. This ambiguity often results in disputes. Also, the contract notice of delay provision may not apply if the contract contains a no damages for delay clause.⁹

Another example of a no damages for delay clause follows:

No claims for increased costs, charges, expenses or damages of any kind shall be made by the Contractor against the Owner for any delays or hindrances from any cause whatsoever; provided that the Owner, in the Owner’s discretion, may compensate the Contractor for any said delays by extending the time for completion of the Work as specified in the Contract. … Should Contractor sustain any damage through any act or omission of any other contractor having a contract with the Owner or through any act or omission of any Subcontractor of said other contractor, the contractor shall have no claim against the Owner for said damage.¹⁰

Owners use other clauses to limit a contractor’s recovery of delay damages. For example, they can use a clause in a purchase order to explicitly exclude incidental and consequential damages to prevent a contractor from recovering damages for delay.¹¹ Also, owners can limit the type or amount of delay damages such as certain demobilization and remobilization costs.

General contractors may use no damages for delay clauses to bar delay claims from subcontractors. For example, the following clause was enforced against a subcontractor, preventing it from recovering delay damages against a general contractor:

No payment of any kind, for compensation, or for damages, or otherwise, shall be made to Subcontractor because of any such delay even though Subcontractor’s extension of time request be granted, unless Owner is obligated to pay Contractor compensation or damages because of such delay, and then, as and when Owner pays such compensation or damages to Contractor.¹²

Another example of a no damages for delay clause in subcontracts provides the following language:

In the event the Subcontractor’s performance of this Subcontract is delayed or interfered with by acts of the Owner, Contractor, or other Subcontractors, the Subcontractor may request an extension of the time for the performance of same, as hereinafter provided, but shall not be entitled to any increase in the Subcontract price or to damages or additional compensation as a consequence of such delays or interference, except to the extent that the prime contract entitles the Contractor to compensation for such delays and then only to the extent of any amounts that the Contractor may, on behalf of the Subcontractor, recover from the Owner for such delays.¹³

Such no damages for delay clauses are common in subcontracts and may be enforced against subcontractors when they pursue delay claims against general contractors,¹⁴ especially when the parties fairly and knowingly agreed upon the clause.¹⁵

In Harper/Neilsen-Dillingham, Builders, Inc. v. United States,¹⁶ the court concluded that the “express and unambiguous ‘no damages for delay’ clause in the subcontract” provided an “iron-bound bar against any potential liability” for a subcontractor’s delay claims against the general contractor.

A flow-down clause may provide the general contractor the same rights against the subcontractor that the owner has against the general contractor. Thus, a flow-down no damages for delay clause in the general contract may be enforced in a subcontract unless there are conflicting subcontract provisions,¹⁷ the delay does not fall within the terms of the subcontract’s no damages for delay clause,¹⁸ exceptions are found, statutes prohibit the clause’s application, or the delay is a type of delay the parties did not contemplate when entering the subcontract.¹⁹

Where an owner/prime contractor agreement contains a no damages for delay clause, prime contractors may be able to bind subcontractors to the clause even if the clause is not in the subcontract. In L&B Construction Co. v. Ragan Enterprises, Inc.,²⁰ the court held that the subcontract’s “flow down clause” incorporated the no damages for delay provision from the prime contract, thus barring the subcontractor’s action to recover delay damages. In addition, prime contractors sometimes include a no damages for delay clause in their subcontracts regardless of whether the prime contract with the owner contains the clause.²¹

Some no damages for delay clauses in subcontracts make an exception allowing a subcontractor to recover delay damages where the general contractor or higher tier contractor recovers from the owner for the delay costs claimed by the subcontractor. An example of such a subcontract no damages for delay clause follows:

NO DAMAGES FOR DELAY: The Subcontractor expressly agrees not to make, and hereby waives, any and all claims for damages on account of any delay, obstruction, or hindrance for any cause whatsoever, including but not limited to the aforesaid cause, and agrees that its sole right and remedy in the case of any delay, obstruction or hindrance shall be an extension of time fixed for completion of the Work [unless and to the extent that the Contractor recovers delay damages from the Owner which are directly allocable to the Subcontractor].

A subcontractor seeking to recover for delay damages against a prime contractor may be barred from such recovery until such time as when (and if) the contractor recovers delay damages from the owner, and then only to the extent that the recovery from the owner includes the subcontractor’s delay damages.²²

The American Institute of Architects (AIA) construction industry documents and federal construction contracts do not include a no damages for delay provision. The AIA general conditions document does not contain a no damages for delay clause but does provide for a mutual waiver of “consequential” damages, some of which clearly relate to damages for delay.²³ If fully enforced, this provision of the AIA contract will preclude the recovery of most types of owner delay damages and damages associated with a contractor’s extended home office overhead Eichleay type claim.²⁴ United States federal contracts specifically provide for the recovery of delay damages by the contractor under the suspension clause.²⁵

3. EXCEPTIONS IN THE ENFORCEMENT OF NO DAMAGES FOR DELAY CLAUSES

No damages for delay provisions attempt to allocate delay risk to contractors, who may be unable to control delay risks. Recognizing the potential inequity of this provision, courts and legislatures have either eliminated the use of such clauses or created exceptions that negate their enforcement. The potential exceptions that could negate enforcement of the clause include:

1. The terms of the clause do not cover the delay.²⁶


2. The project specifications contain a no damages for delay clause, but a subcontractor to one prime contractor seeks to recover delay damages against a separate prime contractor.27 A narrow interpretation of no damages for delay clauses applied by courts does not extend their protection to unnamed third parties. The language of a no damages for delay clause in a contract between a general contractor and a public owner in Florida that denied any third-party benefit under the contract did not extend the waiver of delay damages to other parties, primarily the architect.²⁸


3. The parties did not contemplate the delay when entering into the agreement. Such delays may include delays in obtaining rights-of-way,²⁹ delays caused by the default of other contractors,³⁰ and delays caused by unavailability of the contemplated transportation method for material.³¹


4. The delay was so inordinate in duration,³² it was equivalent to contract abandonment.


5. The delay was due to an owner’s (or owner’s agent’s) active interference with a contractor’s work activities or an act of bad faith by the owner (or owner’s agent).³³


6. The contractor did not adhere to the requirements of other contract clauses to provide notice.


7. The delay clause was waived expressly or by the owner’s actions.


8. The delay was contrary to public policy and statutes.

Courts often first determine that it would not be equitable to enforce the clause under the totality of the circumstances of a given case, and only then attempt to classify the case into one of the exceptions to avoid the appearance of judicially rewriting the parties’ contract.³⁴ In arbitration, specific findings and statements of law are not required of arbitrators when awarding delay damages; thus, an arbitrator may ignore or enforce a no damages for delay clause in the contract.³⁵

3.1 THE TERMS OF THE CLAUSE DO NOT COVER THE DELAY

Courts often strictly interpret a no damages for delay clause. Therefore, a claimant may be able to recover its delay damages notwithstanding the no damages for delay clause if the nature of the delay that has been encountered is not within the stated causes of delay specified in the clause.

Examples of the court’s interpretation of no damages for delay clauses where the cause of delay was not clearly identified in the clause include but are not limited to the following:

1. A no damages for delay clause in one subcontract covered delays caused by the owner, architect, and contractor, but not delays by the material supplier. Therefore, the subcontractor was able to recover its costs that resulted from the material supplier’s delays.³⁶


2. A no damages for delay clause contained the phrase, “delays in the progress of the work.” A contractor was denied site access, which delayed the start of its work. The court ruled that the clause did not apply because the delay occurred before there was any work progress.³⁷


3. A no damages for delay clause provided that any waiver of damages by the trade contractors was conditional on several factors, including that the delay had to be beyond the city’s control, and the city was obligated to grant the contractors an extension of time for the delay. However, the trade contractors did not waive damages for delay if the delay was within the city’s control.³⁸


4. A no damages for delay clause prevented recovery for delays caused by a utility but not for delays caused by the owner’s own performance problems.³⁹


5. An ambiguity in a no damages for delay clause may enable a contractor to recover its delay damages.⁴⁰


6. A conflict between a no damages for delay clause and other provisions of a contract may result in the clause not being enforced.⁴¹

In contracts with no damages for delay clauses, contractors should be careful as to how they describe their damages. If the contractor describes its damages to be delay-related costs, even though the increased costs are a result of additional work or disruption but not the result of delay, the court may deny the claim because of a no damages for delay clause in the contract.⁴²

Contractors may contend and some courts have agreed that a contractual no damages for delay clause does not waive increased costs resulting from loss of productivity/disruption caused by owner changes in the schedule because the clause deals with delay damages, not lost labor productivity damages.⁴³ The argument is that the disruption claim is intended to recover increased costs because the work was made more difficult and expensive to perform, while the delay claim is intended to recover the contractor’s time-related costs.⁴⁴ However, not all courts have agreed with the contractor’s argument that its lost labor productivity due to owner changes and interference was distinct from owner-caused delay.⁴⁵ In another case,⁴⁶ the agreement provided that the general contractor would be entitled to an extension of time only in the event of any delay that was not the fault of the contractor. The agreement also stated that the contractor would not be entitled to additional payment on account of delay, including “direct, indirect or impact damages” and “costs of acceleration because of hindrance or delay for any cause...

Download PDF to continue reading article, footnotes, figures, tables, and references.

---

Long International provides expert claims analysis, dispute resolution, and project management services to the Process Plant Engineering and Construction industry worldwide. Our primary focus is on petroleum refining, petrochemical, chemical, oil and gas production, mining/mineral processing, power, cogeneration, and other process plant and industrial projects. We also have extensive experience in hospital, commercial and industrial building, pipeline, wastewater, highway and transit, heavy civil, microchip manufacturing, and airport projects.

©Copyright - All Rights Reserved

DO NOT REPRODUCE WITHOUT WRITTEN PERMISSION BY AUTHOR.