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Legal Issues

Construction contracts frequently contain "no damages for delay" clauses, providing that the sole remedy for delays will be extensions of time for the completion date. While most subcontractors generally understand that "no damages for delay" clauses can be very unfair, they often sign contracts containing such clauses anyway. This is not unique given the reality that subcontractors generally have little negotiation leverage over their subcontract, this being especially true when many subcontractors bid for the same project.

Although subcontractors usually understand the risk of underbidding for a project to get a job, they frequently overlook the risks of blindly accepting an extremely harsh "no damages for delay" clause, which are routinely enforced by courts throughout the country. There are, however, some exceptions to the harsh application of this type of clause. Two of the most widely recognized exceptions to the enforcement of these clauses include: 1) when the delay was not intended or contemplated by the parties to be within the scope of the clause; or 2) when the delay was the result of active interference by the buyer.

Before considering the different exceptions, it is important to note that the enforceability of such clauses varies from state to state. Some state legislatures have even enacted specific legislation limiting the applicability or enforceability of "no damages for delay" clauses, while other states recognize broad exceptions to the enforceability of such clauses. Therefore, it is always prudent for a subcontractor to be familiar with the particular law that may apply.

Until recently, no Virginia case had addressed the enforcement of a "no damages for delay" clause and whether exceptions might be recognized under Virginia common law. In Blake Construction Co., Inc. / Poole & Kent v. Upper Occoquan Sewage Authority, the Virginia Supreme Court ruled that the Virginia General Assembly meant exactly what it said when it enacted Section 2.2-4335(A) of the Virginia Public Procurement Act, which regulates "no damages for delay" clauses in public contracts.

The court found a contract to be unenforceable that attempted to release and extinguish all unreasonable delay damages available to the contractor unless the unreasonable delay was coupled with bad faith, willful conduct, malice, gross negligence or abandonment of the contract by the owner. The contract also made exceptions for late payments, late owner-furnished equipment and delayed access to work areas.

Other jurisdictions have been more proactive in recognizing exceptions to the application of these types of clauses. In 1963, the Supreme Court of Pennsylvania in Gasparini Excavating Co. v. Pennsylvania Turnpike Commission recognized that such clauses cannot be raised as a defense where there is an affirmative or positive interference by the owner with the contractor's work. Some examples of actions that rise to the level of "affirmative interference" under Pennsylvania law include: an owner issuing formal notice to begin work while knowing that the work site is not ready for the contractor; an owner failing to advise the contractor that it would not have access to portions of the project for several months, thus forcing the contractor to incur increased man hours; or even an owner's failure to relocate a water main that subsequently interfered with the contractor's work.

While the appropriate state law or legislation may provide relief to the subcontractor who finds him or herself bound to an overly harsh "no damages for delay" clause, it is always prudent to treat such clauses with caution. When negotiating the terms of a contract that contains a "no damages for delay" clause, be careful to include language that excludes unforeseeable delays from the scope of the "no damages for delay" clause. Also, be sure to 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 damages for delay" exceptions, rather than simply as a delay.



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