Contract law can be confusing and tedious. Courts continually comb through contracts, picking apart words and provisions. There seems to be no such thing as an airtight clause. The only things that are guaranteed in life are death and taxes. “No damage for delay” clauses are no guarantee either to hold up in a court of law. These clauses are designed to protect parties of construction contracts from lawsuits for withholding payment due to delays in construction projects. The clause would appear to exonerate owners from any damages caused by delays, but this Pennsylvania court made it very clear that is not the case when explaining an exception to a “no damage for delay” clause.
The Background
This lawsuit was initiated from a construction job to be done for Penns Valley Area School Districts (“District”). The District was having a new biomass boiler system constructed. John Spearly Construction, Inc. (“Spearly”) was hired as the general contractor of the project. The District also directly contracted a Project Architect and other contractors responsible for different parts of the project. The work began in July 2010 and was agreed to be substantially completely by October 2010. Unfortunately, the project was not substantially completed until August 11, 2011.
Like many other construction projects throughout the country, this particular projects experienced many delays and issues. These delays were caused by the District’s Architect handling issues between the District and the heating, ventilating, and air conditioning contractor. Also, the District decided to bring in a sewer contractor which further delayed other aspects of the project. The District blamed these delays on the general contractor, Spearly. Consequentially, the District withheld partial payment from Spearly due to the delays and issues experienced on the job. Spearly, of course, was forced to file a claim to recover the funds withheld.
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The Courts
The District did not have a shot from the start. The District argued that the “no damage for delay” clause in the contract exonerated it. The trial court disagreed, handing down a verdict for Spearly. The reasoning was that the District actively interfered with the project further causing delays that were unforeseen by the general contractor. These delays caused by interference of the owner were not covered by the “no damage for delay” provision. The District appealed.
In John Spearly Constr., Inc. v. Penns Valley Area Sch. Dist., the Pennsylvania appellate court affirmed the trial court’s decision. The District tried to argue that they should not be responsible for third-party issues and delays and that change orders should not affect the “no damage for delay” clause. The court, once again, disagreed. It was very clear that multiple delays can be traced back directly to the District. The district argued that these delays were still covered under the clause, but the court thought otherwise, stating:
Thus, a “no damages for delay” clause will not be enforced if a school district, or its agent, either took positive action not reasonably anticipated under the contract, or failed to act as needed for a project to progress. This case implicates both the positive action and the failure to act aspects of this claim.
The District further argued that delays caused by other parties should not be held against the District itself. Namely, the delays and issues caused by the sewer contractor and architect. The court responded saying, “an owner may be liable for action or inaction of third-party contractors when the owner is ultimately responsible for the scheduling and oversight of those contractors.”
This is where the argument went a little off the rails. The District argued that the change orders on the project should not be considered active interference. While the merits of this argument in other circumstances may be debatable, in this case is was going nowhere from the start: the contract between the District and Spearly specifically defines change orders as active interference by the District. Subsequently, the court awarded Spearly delay damages, penalties and fees, and the contract payment wrongfully withheld under the Pennsylvania Contractor and Subcontractor Payment Act.
Moral of the Story
Read your contract. Understand your contract. Know your contract.
If something is expressly stated in your contract, there is not much way around it. For contractors, understand that many provisions in contracts are not airtight. Do not give up on getting paid just because an owner or general contractor tosses some legal jargon your way. Where there is a contract provision, there are exceptions. Also, other avenues exist besides contract disputes and litigation, i.e. mechanics liens. The construction industry is unique in many aspects, of which this is one. This scenario allows for many parties to be taken advantage of. Protect yourself by arming yourself with knowledge. Know your legal rights, and make sure you get what you are owed.
