CONSTRUCTION LAW
"No-Damage-For-Delay" Clauses Are Here To Stay
By Joseph P. Dirik - Jenkens & Gilchrist
I was having lunch at the Barbecue Pit with Rodney, another
lawyer from my firm when Bubba Wilson stopped by and asked
if he could join us. "Of course" I said, "we
were just talking about no damage-for-delay-clauses."
"I'm glad I ran into you two" he said, "a contractor
friend of mine just lost a big case because his contract included
a no-damage-for-delay clause." "What do I need to
know so that my company is prepared to deal with these clauses?"
asked Bubba.
No-Damage-For-Delay Clauses
Rodney explained that Texas is among a number of states that
rigidly enforce "no damage for delay" clauses because
our courts generally believe in freedom of contract. Texas
contracting parties are generally free therefore, to allocate
the risk of construction delays between themselves.
The usual purpose of a no-damage-for-delay clause is to shift
the risk for construction delays from the buyer of construction
services to the seller of the services. These clauses are
aimed at delays caused by the buyer or third parties. General
contractors occupy both positions -- as a buyer (when contracting
for subcontract services) and as a seller (when contracting
with an owner). Your goals will necessarily be different in
both situations. Buyers want broad coverage while sellers
seek to limit the type of delay that falls within the no-damage-for-delay
situation.
The no-damage limitation might not apply if the delays fall
within one of several exceptions to the no-damage-for-delay
clause. Two of the exceptions deserve special attention and
might apply when the delay: (1) was not intended or contemplated
by the parties to be within the scope of the clause; or (2)
was the result of active interference by the buyer with the
performance required by the seller under the contract.
Delay Not Within Contemplation of the Parties
It is difficult to successfully claim that the parties did
not contemplate a particular delay if the contract contains
a broad no-damage-for-delay clause. For example, Texas law
suggests that unforeseeable delays be covered within a broad
no-damage-for-delay clause.
In a leading Texas case on the subject, the court found that
a broad no-damage-for-delay clause applied to both foreseeable
and unforeseeable delays. The case involved a two-year contract
to construct a passenger terminal at the Houston Intercontinental
Airport turned into four years, due in part to several hundred
change orders and over eight hundred requests for information.
The contractor unsuccessfully argued that because it and the
City did not foresee the great number of changes and requests,
the no-damage-for-delay clause was unenforceable. The court
rejected this argument and concluded that the purpose of a
broad clause was to allocate the risk for unforeseeable delays
and denied the contractor compensation for its delay damages.
Active Interference
Texas law also suggests that a general no-damage-for-delay
clause cannot excuse the active interference of an owner that
causes delays and resulting damages to the contractor. In
a recent 1998 appellate case, the court refused to disturb
a jury finding that the general contractor had actively interfered
with its subcontractor's performance of the work. Examples
of interference in the case included: (1) the general contractor's
failure to coordinate and sequence the work of all the subs
on the job; (2) improper surveying by the general contractor,
and (3) the general contractor's failure to ensure that work
completed by the subcontractor was not adversely affected
by other subs on the job.
Enforcement of the No-Damage-For-Delay Clause
Most no-damage-for-delay clauses provide for a time extension
as the sole remedy for the contractor in the event of construction
delays caused by the owner. Some courts have found that an
owner waives application of the no-damage-for-delay clause
if it fails to grant such an extension for delays it has caused.
On the other hand, subcontractors and contractors may find
they have forfeited their ability to challenge a no-damage-for-delay
clause and recover for damages if they have failed to provide
timely notice when required.
Contract Negotiation and Administration Tips
Rodney and I gave Bubba the following tips for contract negotiation
and administration regarding no-damage-for-delay clauses.
When acting as the seller of construction services (general
contractor or subcontractor):
Ask your lawyer to propose language that excludes unforeseeable
delays from the scope of the no-damage-for-delay clause.
Always provide timely notice of delays, interference or hindrances
caused by the buyer.
When appropriate, your notice of delay letter should characterize
the event as one of the recognized no-damage-for-delay exceptions,
rather than simply as a delay.
When acting as the buyer of construction services (owner or
general contractor):
Ask your lawyer to propose a broad no-damage-for-delay clause
that appropriately addresses intentionally caused buyer delays.
Your contract should include a notice provision for delays.
Always respond to a notice of delay and issue a time extension
when appropriate if your no-damage-for-delay clause provides
for this as the sole remedy. |
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