Construction delays are the norm, not the exception. It’s an unfortunate truth, but a truth nonetheless. But there’s one contract clause that could shift an inordinate amount of risk in delay situations. That’d be a No Damages for Delay clause (aka a ‘No Pay for Delay’ clause). No damages for delay clauses have created headaches for contractors, subs, suppliers — read on as we take a closer look.
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Watch Out for ‘No Damages for Delay’ Clauses
Since time is money, project delays can really cost the contractors, subs, and suppliers working on any given job. So what happens when delays have a ripple effect and begin to cost serious money? Who pays for delays?
As a general rule, if a contractor or sub is delayed in performance due to the fault of another, they may be able to recover damages to cover the cost of delay.
This makes sense – one trade shouldn’t have to absorb the cost of delaying or rescheduling work due to something that’s out of their hands. Eating the cost for delays or rescheduling your work can be brutal to the bottom line, and when the delay is someone else‘s fault, it’s just unfair. Still, delays cost money, and someone has to pay for the additional cost.
However, to avoid paying for construction delays, some parties (typically, higher tiers) may try to eliminate risks associated with delays by using a ‘no damages for delay’ clause. If such a clause is included in your contract and a delay occurs, you just might have to write off the cost of that delay as the cost of doing business. Or, the only recourse you may have is an extension of time (or the ability to request an extension).
‘No damages for delay’ clauses can take different forms, though, just like the underlying delays themselves. Like pretty much every other construction issue, the circumstances surrounding the delay will matter quite a bit.
What Happens If a ‘No Damages for Delay’ Clause Is Not Present?
Very generally – if a ‘no damages for delay’ clause is not present, in theory, each party could be held responsible for the fallout from the delays that they cause. That sounds pretty simple, but consider the sprawl of a construction project, and how work must be performed sequentially.
One party’s delay could affect the next trade, and the next trade, and a supplier, and on and on. On large projects, a simple delay at the start of a job could create headaches (even migraines) for everyone else on the job. It makes sense, then, that someone would want to minimize the risk that they’re liable for.
How ‘No Damages for Delay’ Clauses Are Applied
As mentioned above – it’s all circumstantial. There are a variety of factors that will affect whether a no damages for delay clause will be enforceable (and to what extent). Here are some factors to take into account:
Just like mechanics lien laws, the rules for use of ‘No Damage for Delay’ clauses in construction contracts vary on a state-by-state basis. On the whole, the vast majority of states will enforce a clear no damages for delay clause to some degree. Still, there are exceptions – for example, Washington State and Oregon have both curbed their use.
The circumstances surrounding any given delay will play heavily into whether a no damages for delay clause will be enforced. We lay out some exceptions below, but even if an exception doesn’t apply, circumstances could still affect whether a clause will be enforced (and to what degree).
Type of Damage
How the specific party was affected by the delay will matter, too. If no damage was incurred, the whole dispute might not matter anyway. But even where some damage has taken place, if that damage can be easily remedied, a court would be less likely to find a no damages for delay clause inapplicable.
Source of Delay
The root cause of the delay will matter quite a bit. This definitely dips into the exceptions listed below, so read on to see what types of causes could affect whether a no damages for delay clause will work to shift risk.
Potential Exceptions to ‘No Damages for Delay’ Clauses
Even when there’s a valid and enforceable ‘no damages for delay’ clause in place, there are some exceptions that might apply. Most states have developed their own specific rules, but the following exceptions have become relatively common and widespread.
There is no bright-line rule to determine how long the delay needs to be before it becomes “unreasonable.” The courts will usually determine this on a case-by-case basis, looking at the surrounding facts and circumstances.
Delays Not Contemplated by the Parties
Generally, if this type of delay was not covered by the clause language, the party will not be exempt from liability. Most states are actually split on this issue. Some recognize it, while others feel uncontemplated delays are the whole purpose of a ‘No Damages for Delay’ Clause.
If your state does recognize this exception, you must show that the delays were not reasonably foreseeable at the time of contracting. This can be trickier than it seems. Poor planning, bad administration, and faulty performance by other contractors have all been held to be “foreseeable” and do not provide the exception.
Acts or omissions that actively interfere with the progress of the project will usually be beyond the protection of the clause. In most states, this involves some sort of “affirmative, willful conduct” which is greater than ordinary negligence or passive omission. Unless of course, the clause specifically includes acts of negligence.
Fraud, Bad Faith, or Gross Negligence
Courts will not allow any party to escape liability if the delay was caused by their own intentional false acts or statements. Minor mistakes in management or judgment do not fall within this exception unless they are grossly negligent. This means that there has to have been a certain element of recklessness involved.
So…What to Do?
Research all of your state’s relevant laws concerning delay clauses. A good understanding of your state’s exceptions can help you negotiate more favorable terms.
Once you have received the contract, read it carefully! The language is crucial because it determines the scope and the types of delays that are covered. If a delay occurs, you need to figure out what happened. What type of delay occurred? Was it a simple or foreseeable delay?
You should then calculate the amount of damages that you may have incurred. Has the date of completion changed? How much more work/costs have you incurred? Now that you have determined the type of delay and the damages caused, identify the source and document everything! Keeping thorough records of all project delays will keep you prepared in the event a problem arises.