No-damage-for-delay clauses can produce harsh results. Under the plain language of these contract provisions, the contractor waives the right to recover any damages of any kind incurred as a result of any delay or disruption of any nature, regardless of cause or fault. The contractor’s only remedy is an extension of the performance period.
Due to the severe ramifications of these clauses, courts have carved out a number of exceptions to their enforceability. The most widely recognized are breach of contract by the project owner, gross negligence or willful misconduct by the owner, delays not contemplated by the parties, and abandonment of the project by the owner.
While these exceptions are easy to state, they are difficult to apply. This was illustrated in a recent New York case. The project owner and its construction manager were woefully inadequate in scheduling and coordinating the work of multiple prime contractors. The project was completed 526 days behind schedule.
When the general building contractor sued the owner for delay damages, the owner raised the no-damage-for-delay clause as a defense. The contractor argued the clause was unenforceable in light of the owner’s gross negligence. But the court said inept administration and poor planning do not amount to gross negligence. The clause could be enforced against the contractor.
What is your opinion of no-damage-for-delay clauses? Are they a reasonable allocation of risk under the contract? Or are they one-sided, imposed under the terms of publicly bid contracts where there is no opportunity to negotiate risk allocation? I welcome your comments.
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