ConstructionPro Week, Volume: 2 - Issue: 49 - 12/06/2013

Are No-Damage-for-Delay Clauses Still Enforceable?

By Bruce Jervis

 

No-damage-for-delay clauses have long been fixtures in construction contracts. The contractor acknowledges that its sole remedy for delay of any cause shall be an extension of the performance period. The contractor relinquishes the right to recover any costs or damages incurred as a result of delay. Project owners have imposed these terms on contractors that, in turn, have imposed them on subcontractors.

 

The harsh, one-sided nature of these clauses has led to a pushback. Legislatures in some states have enacted statutes rendering no-damage-for-delay clauses unenforceable. Judicial decisions have had the same effect. In some -- primarily western -- states, mechanic’s lien rights are protected by the state constitution. Delay damage disclaimers have been ruled an unconstitutional impairment of lien rights.

 

Now there’s a new line of attack against no-damage-for-delay clauses. A federal district court has ruled that a clause in a subcontract on a federal project violated the Miller Act and was unenforceable. The statute prohibits the prospective waiver of payment bond rights. Delay damage disclaimers effectively extinguish those rights with regard to the increased cost of labor and materials incurred as a result of delay.

 

What is your opinion of these clauses? Are they simply an appropriate allocation of risk under the contract? Or, are they so one-sided and unilaterally imposed that they should be rendered unenforceable as a matter of law? I welcome your comments.

 

COMMENTS

I read with great interest the push back on no monetary relief for damages resulting from delays. More and more the owners/clients do not want a true arms length trasaction between two "equal parties" but a contract form that is similar to that between a trust company and a child. It seems that although the client single-handly causes the delay, they want protection. In other words, the contractor is to "protect" the client from the clients own mistake and is even suppose to prevent them from making them. I think that this is a move in the right direction becuase it should not shift risk that the contractor cannot control.
Posted by: Robert R. Costigan - Friday, December 06, 2013 2:42 PM


I would agree that contractors unreasonably suffer for delays caused by owners (and often their consultants), and should not be required to bear those costs. But I would add to the discussion the similar clauses in the standard professional services contracts of certain governmental entities that do not allow architects & engineers to recover costs of delay outside their control either, whether caused by the owner, or failure on the part of a contractor to perform.
Posted by: John Christiansen - Friday, December 06, 2013 2:55 PM


As long as contracts are not between two equal standing parties acknowledged to have mutual interests (a succesful project). These are just some of those 'intangible' costs that contractors will need to creatively find ways to hide into their prices and make it increasingly impossible for project owners to consistently get well defined prices.
Posted by: Andrew Wahome - Saturday, December 07, 2013 1:19 PM


"No-Damage-for" clauses are enforceable and appropriate if: (i.) the terms of the contract specify the "for", (ii.) it is consistent with applicable laws and equity, (iii.) it is the result of foreseeable cause contemplated by the parties, and (iv.) the party who bears the risk can price it. As construction management and claims consultants, we recommend all parties (e.g., contractor, owner, surety) assess such clauses against this four part test, preferably before contract execution. Failure to meet any part indicates the clause is most likely unenforceable, inappropriate, or both. When confronted with such apparent failure always get legal counsel with respect to enforcement in the applicable jurisdiction, especially if you are unsure about Part ii. of the four part test. Then, you will be in a much better position to know what to do.
Posted by: Richard Bull - Sunday, December 08, 2013 6:25 PM


Any contractual term that is intentionally one-sided and punitive in nature, but is not breached by the party to which the term is imposed should be eliminated. The no-damage-for-delay clause is a prime example of one such clause.

As others have stated, these types of terms are increasingly being set down by courts, and the remaining places where they can exist just see contractors incorporating the value of this risk into projects costs.
Posted by: Mike Debiak - Monday, December 09, 2013 11:25 AM


 









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