Those familiar with the construction industry know that construction projects are seldom, if ever, completed within the time originally anticipated at the project’s outset. Fortunately, prime contractors and lower-tier subcontractors are often permitted to seek additional costs stemming from owner-caused delays—commonly referred to as compensable delays. However, the presence of a no damages for delay clause in a contract can significantly impede a contractor’s and subcontractor’s ability to pursue claims for compensable delay. Because delays increase construction costs, construction contractors and subcontractors should understand these provisions, and any limitations on their enforceability to better manage risk on both public and private construction projects.
What Is a No Damages for Delay Clause?
A no damages for delay clause is a contractual provision often contained in construction contracts that is meant to shift the risk of loss caused by project delay from the owner to the prime contractor and/or from the contractor to its subcontractors by prohibiting or waiving monetary compensation for project delays, even when those delays were not caused by the contractor or subcontractor. Instead, affected parties are generally limited to schedule extensions as their sole remedy. Contractors facing extended timelines without corresponding compensation may suffer serious financial setbacks. Common examples of unrecoverable damages under these clauses include:
- increased labor, material, or equipment costs;
- additional project management or administrative costs;
- loss of productivity and acceleration costs; and
- extended general conditions.
Exceptions to Enforceability
While states generally permit and enforce no damages for delay clauses, there may be exceptions to the enforceability of these clauses. Examples of potential exceptions recognized in several states include:
- delays caused by fraud, misrepresentation, concealment, or other bad faith;
- delays so unreasonable in length as to amount to project abandonment;
- delays not contemplated by the parties at the time of contracting; and
- delays caused by the other party’s active interference.
It is important that contracting parties be aware of exceptions that may govern under the contract’s applicable state law.
Enforceability in the Case of Public Contracts (or Government Contracts)
A few states have also enacted statutes that limit or prohibit the enforceability of no damages for delay clauses in public contracts (or government contracts). As applicable to prime contractors, some states consider any clause that would absolve the state government of any monetary liability for government-caused delays to be unenforceable as against public policy. Similarly, a few states will not enforce no damages for delay clauses in subcontracts to the extent they infringe on payment bond rights under applicable Little Miller Acts.
In the case of federal procurement contracts, the Federal Acquisition Regulations (FAR) explicitly entitles prime contractors to an equitable adjustment of the contract price where their work was interrupted by the acts or omissions of the government. While select FAR clauses contained in federal procurement contracts may flow down through a subcontract, subcontracts under federal projects are largely governed by state law, so understanding applicable state law is essential. Moreover, federal courts are divided on whether no damages for delay clauses are enforceable under the Federal Miller Act.
Takeaway
No damages for delay clauses can significantly impact a contractor’s ability to recover costs associated with project delays. These clauses should be carefully considered in conjunction with any applicable limitations to enforceability under state or federal law. If you are a prime contractor or subcontractor and need guidance on the enforceability of a no damages for delay clause or assistance with a related claim, please contact Jessica duHoffmann, Jonathan Neri, or another member of PilieroMazza’s Construction or REAS, Claims, and Appeals practice groups.
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