No Damage for Delay Clauses and Your Right of Recovery
by Tracy Steedman, Esq.

The "no damage for delay" clause is a common method used by owners and contractors to shift the risks of delay on construction projects to subcontractors - the party with the least amount of control over the progress of construction. As noted in Donald Gregory's article, "Negotiating a Contract You Can Live With" (TCC, 3rd Quarter 2005, p. 9), the "no damage for delay" clause is considered one of the top 10 "deadliest" provisions in a subcontract and should be avoided.

All is not lost, however, in the event that a subcontract contains such a provision. The subcontractor may still be entitled to additional compensation for delays because there exist several exceptions to the enforcement of the "no damage for delay" clause. In addition, delay-related damages such as impact and disruption damages may also be recoverable.

The key to preserving any potential delay or impact claim is strict compliance with the terms of the subcontract - specifically, the notice requirements.

A Typical 'No Damage for Delay' Clause
Typically, a "no damage for delay" provision provides that the only remedy to the subcontractor for delays will be an extension of time. For example:

Should the Subcontractor's performance be delayed by any acts of the Contractor, its subcontractor or suppliers, or delayed by the acts or causes which entitle Contractor to an extension of time under the prime contract, the Subcontractor shall receive an extension of time for its performance. Subcontractor agrees that an extension of time shall be its sole remedy for delays. Subcontractor shall notify the Contractor in writing within 5 days of the event giving rise to the delay or the Subcontractor's claim for an extension of time is forever waived.

Under this provision, the subcontractor receives a time extension for "excusable" delays, which are events "beyond the control" of the parties. It is typical for performance time to be extended in cases of unusually severe weather, natural disasters, acts of government, or unforeseeable labor strikes. But why should the subcontractor absorb additional costs for delays actually caused by the contractor or its subcontractors, delays which are categorized in the industry as "compensable"?

Subcontractors should be aware that the above sample provision does not automatically bar recovery of delay and other related damages against a contractor. First, there are exceptions to the enforceability of the "no damage for delay" clause; and second, courts distinguish between "impact" and other delay-related damages, and allow recovery if the "no damage for delay" clause does not expressly address those damages.

Exceptions to the 'No Damage for Delay' Clause
Although "no damage for delay" clauses are generally enforceable, there are a few notable exceptions recognized throughout the country (although not every state recognizes each exception): (1) delays caused by the contractor's bad faith or its active interference or grossly negligent conduct; (2) delays not contemplated by the parties; (3) delays so unreasonable that they constitute an intentional abandonment of the contract by the contractor; and (4) delays resulting from the contractor's breach of a fundamental obligation, express or implied, of the contract.

Examples of contractor conduct that may preclude the enforceability of the "no damage for delay" provision include, but are not limited to, the following: restricted access to the project site; premature issuance of notice to proceed; failure to coordinate subcontractors and untimely completion of necessary preceding work; failure to manage site conditions; untimely responses to shop drawings, submittals and requests for information; mismanagement of the change order process; and failure to properly schedule the project. Obviously, no project is perfectly run but the question becomes: Did any one action or combination of these actions by the contractor cause the subcontractor to incur unanticipated additional costs?

Impact and Disruption Damages Distinguished From Delay Damages
Because "no damage for delay" clauses have harsh effects, the courts strictly construe them. What does that mean for subcontractors? In short, if the "no damage for delay" clause does not expressly mention "impact" or "disruption" damages, the court may allow recovery of those damages. Impact damages are those that arise from the contractor's actions on a delayed project which make the subcontractor's work more difficult, resulting in a loss of productivity on the project. The most common problem on delayed projects that results in loss of productivity is project mismanagement, such as improper scheduling and direction of trades causing the stacking of trades, out-of-sequence work and forced piecemeal performance of work. Recovery of such damages can be sought under subcontract provisions addressing changes or extra work, differing site conditions or suspension of work clauses.

Preserve Your Delay or Impact Claim
Remember, it is the subcontract that determines the subcontractor's potential right of recovery. Subcontract provisions that address delays, claims, changes, differing site conditions or other potential disputes require timely notice of claims for additional compensation. Generally, failure to provide such notice acts as a waiver of the subcontractor's claim (see sample provision).

Courts have repeatedly found that the failure to provide timely notice as required by the subcontract precludes a subcontractor's right to any recovery. Therefore, strict compliance with the notice requirements in the subcontract is crucial to preserving a subcontractor's delay or impact claim.

Take Action
Subcontractors should not assume that the existence of a "no damage for delay" clause precludes the recovery of delay and other delay-related damages. Therefore, subcontractors should take the time to provide written notice of the causes of a delay immediately after their occurrence. The notice should include the potential costs or other impacts that the circumstances might have on the subcontractor's performance. Finally, the notice should also include a request for an extension of time. By taking the time to provide the notices, the subcontractor increases its chances of recovery of its delay and delay-related damages.

Tracy L. Steedman is with the law firm of Harrison Law Group, Towson, Md., and is secretary of ASA of Baltimore, where she also serves on the Professional Council and Legislative and Marketing Committees. She also serves on ASA's national Task Force on Risk Transfer. She can be reached at tsteedman@harrisonlawgroup.com.