After being awarded a contract to remove silt and debris from an empty lakebed, the contractor was ready to begin work, and was understandably surprised to find the lake filled with water. To make matters worse, the owner ordered the project to start anyway, and then refused to pay any of the extra costs. Despite clearly changed conditions and restricted site access, the owner took refuge behind a “no damage for delay” clause, dragging the contractor through years of litigation to get paid.
The best way to stay out of court is for all industry participants to perform contracts in good faith and reasonably. When contracts include “no damage for delay” clauses, contractors and owners should understand the potential reach, and limitations, of these unfortunate clauses.
“No Damage For Delay” Clauses Aren’t Blank Checks
A previous article addressed the sometimes-harsh effect of “no damage for delay” clauses, which can force contractors to absorb unanticipated delay costs caused by owners.
Those severe consequences are not inevitable. Contractors may be entitled to reimbursement of delay costs, despite these clauses, when an owner’s “active interference” caused the delay.
Active interference often involves owners behaving unreasonably. In the lakebed case described above, the Pennsylvania Supreme Court awarded delay costs to the contractor, not because the lake was filled with water, but because the owner insisted that the project move forward despite this changed condition. This constituted active interference, and the “no damage for delay” clause did not apply.
North Dakota Recognizes Active Interference Exception
Last year, the North Dakota Supreme Court affirmed the important right of contractors to be paid delay costs, despite a “no damage for delay” clause, for delays caused by an owner’s active interference.
In C & C Plumbing and Heating, LLP v. Williams County, the owner’s construction manager ordered steelworkers “to put up steel wherever [they] could . . . to demonstrate . . . that progress was being made.” The steelworkers usually erected the steel from the “inside-out.” When that wasn’t possible, the CM ordered them to work from the “outside-in,” which effectively altered the contractor’s chosen means and methods. Despite a “no damage for delay” clause, the contractor was (eventually) awarded its extra costs because the owner’s representative actively interfered with the work.
North Dakota joins a growing list of states that recognize the limited reach of “no damage for delay” clauses. This was recognized in Iowa over forty years ago. “No damage for delay” clauses are completely unenforceable in Minnesota. The South Dakota Supreme Court has not addressed this issue, but would likely follow the example of its neighbors.
Take Steps to Manage Delay
Public contracts almost universally require us to start managing changes on day one, often before knowing all the facts, including the full impact of the change and the nuances of our legal rights. These risks can be effectively managed by diligently documenting delays, including providing timely written notice and tracking extra costs, at all phases of construction. This should be done despite an owner’s insistence that delay costs aren’t compensable under the contract. Contrary to owners’ wishful thinking, “no damage for delay” clauses do not require contractors to absorb costs simply because changes cause delays (as most changes do!).
Build it right. Keep it real.
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