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.
