No damage for delay: A work of contractual fiction

Time Is Money

Time is money, and extra days on the jobsite mean extra costs. Yet, construction contracts routinely pretend this isn’t so by washing the hands of owners who delay the work. A “no damage for delay” clause states that a contractor cannot recover extra costs from an owner for project delays, even when the owner caused those delays.

A typical “no damage for delay” clause may state:

No payment or compensation shall be made for damages resulting from hindrances or delays in the progress of the work, whether such hindrances or delays are avoidable or unavoidable. A delay caused either wholly or in part by the actions of someone other than the contractor shall only entitle the contractor to an extension of time.

The basic purpose of the clause is to shift the risk of delay costs from owners to contractors. Even when the owner causes the delay, the contractor cannot recover its extra costs, but can only seek a time extension.

There are five exceptions that may render a “no damage for delay” clause unenforceable:

(1) Statutory prohibitions;
(2) Delays not contemplated by the parties;
(3) Delays resulting from “active interference” by the owner;
(4) Delays of unreasonable length; or
(5) Delays resulting from fraud, misrepresentation, or bad faith by the owner.

The first exception arises because a few state legislatures have acknowledged that “no damage for delay” clauses are unfair and against public policy, and have limited enforcement of these clauses. In Minnesota, for example, such clauses are prohibited in public works contracts, but legal for private contracts. Minn. Stat. § 15.411.The majority of states, however, continue to allow “no damage for delay” clauses to be enforced, and the exceptions can be difficult to prove.

Are subcontractors protected in states that prohibit “no damage for delay” in public works contracts?

This question arose in St. Louis Housing Authority v. Hankins Construction Co.

Like Minnesota, Missouri prohibits the enforcement of “no damage for delay” clauses in public contracts, but allows it in private contracts. A subcontract on a public works project contained a “no damage for delay” clause, and also required the subcontractor to complete its work according to the terms of the public contract. After the project was delayed, the subcontractor sought delay costs, arguing that it was a protected “contractor” under the Missouri statute, and that the “no damage for delay” clause should not be enforced.

The federal district court disagreed, based on its determination that a contract between a general contractor and a subcontractor is not a “public works” contract under the statute. The court found that the statute unambiguously applied only to contracts to which the government entity is a party, so the subcontractor was not allowed to recover its delay costs.

Minnesota courts have not yet addressed this issue. However, the Minnesota statute and the Missouri statute contain nearly identical language defining “public works” contracts, which was central to the federal district court’s analysis of the Missouri statute. When, if ever, this issue comes before Minnesota courts, Minnesota may adopt the same interpretation.

Even in states that consider “no damage for delay” clauses unenforceable, contractors and subcontractors should understand the limitations that may apply, so they can bid, plan, and perform their work accordingly.

Build it right. Keep it real.

© 2014 Welle Law P.C. No unauthorized use or reproduction.

This blog is for informational purposes only and should not be interpreted as legal advice. You should contact your attorney regarding any particular issue or problem. Nothing on this website creates an attorney-client relationship between Welle Law P.C. (or any of its attorneys) and the reader.

Leave a comment

Your email address will not be published. Required fields are marked *