No Damages for Delay Clauses: An Update

Contractual provisions that bar a contractor from making a claim for damages as a result of delays are routine. Virtually every construction contract contains some form of a “no damage for delay” clause. Although these clauses are generally enforceable, there have been a number of recognized exceptions. These include delays caused by (a) active interference; (b) failure to act in a manner essential to contractual performance; and (c) bad faith. Delays that are so great so as to amount to project abandonment and delays that could not have reasonably been contemplated by the contractor at the time it submitted its bid are also recognized exceptions. Examples of active interference include providing inaccurate drawings, failure to timely respond to requests for information and change order requests, multiple changes in the owner’s site representatives and failure to coordinate the work of the various contractors working on the project.

A recent case however, raises the specter of courts more narrowly applying these kinds of exceptions. In Mafco Electrical Contractors, Inc. v. Turner Construction Company, a case decided this year by the United States District Court for the District of Connecticut, the court dismissed a subcontractor’s claim for delay damages against a general contractor based on a no damages for delay clause contained in the subcontract. The subcontractor, Mafco Electrical, alleged that Turner, the general contractor, failed to follow the approved schedule, thereby requiring out of sequence work, failed to provide reasonable access to the site, failed to see that predecessor work was timely completed, failed to coordinate work of the various subcontractors working on the project and failed to timely respond to requests for information. The court held that regardless of how badly Turner carried out its contractual duties, these actions did not rise to the level of bad faith or gross negligence.

The Mafco court established bad faith or gross negligence as the standard for avoiding the applicability of a no damages for delay clause. This bad faith or gross negligence standard raises the bar considerably and makes it more difficult to overcome these types of clauses. However, the court did leave the door open a crack. It found that although Mafco had notified Turner of the delays impacting its work, it did “not describe any specific dates, circumstances or duration of non-performance, harm suffered or consequences to Mafco” in the notices it was providing to Turner. Thus, in order to avoid a no damages for delay clause and make use of the recognized exceptions, a contractor seeking to make a claim for delay damages must not only show that the facts on the ground constitute an exception to the no damage for delay clause, it must also show that the party against whom the delay claim is being made specifically knew how the facts on the ground were impacting the contractor or sub-contractor seeking damages.

The lesson to take away is this: in order to avoid the applicability of a no damages for delay clause, a contractor seeking to recover delay damages must provide timely, specific notice to the owner or contractor against whom the claim is being asserted. A simple reservation of rights letter may no longer be adequate.

Theodore A. Adler, who is a founding partner of Reager & Adler and the director of Reager & Adler’s Litigation Group, contributed this article. Ted has been repeatedly recognized by his peers as one of the foremost construction lawyers in Pennsylvania, and as one of the premier litigators in Central Pennsylvania. He received his legal education from the Dickinson School of Law of the Pennsylvania State University, and has served as an Adjunct Associate Professor of Law at his alma mater. Ted currently directs the Construction Law, Civil Litigation, Collections and Workouts, Personal Injury and Alternative Dispute Resolution practice areas at Reager & Adler. He may be reached by calling (717) 763-1383 or via email at TAdler@ReagerAdlerPC.com.

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Harrisburg Magazine Readers' Choice 2011