July 25, 2022
The No Damages for Delay Clause
A construction contract expressly states parties’ duties and obligations, but there are also implied duties and obligations, such as the duty to cooperate and not hinder the performance of other contracting parties. These expressed and implied duties can shift greater liability onto owners. If an owner does not perform its duties and obligations in a timely manner, thus delaying a contractor’s performance, the contractor may incur increased time-related costs. Owners frequently seek to include “no damages for delay” clauses in construction contracts to avoid responsibility for contractors’ increased time-related costs.
A no damages for delay clause attempts to protect an owner from receiving a time-related damages claim from a contractor (or a contractor from receiving a time-related damages claim from a subcontractor) as a result of delay, even if the owner (or contractor) caused the delay. The no damages for delay clause applies to delays that affect a contractor’s cost of performance, and usually not the owner’s time-related costs resulting from delay, and typically provides that the contractor is only entitled to a time extension for delays to its work. A no damages for delay clause may also apply to delays to the notice to proceed date.
The intent of a no damages for delay clause is clear: the owner wants to allocate a specific financial risk to the contractor. Unless an owner directs a contractor to accelerate to overcome delay, by inserting a no damages for delay clause in a contract, the owner intends to avoid paying for delays and is willing to accept late project completion if it is responsible for delays.
From the standpoint of risk assessment, such a no damages for delay clause should alert a bidding contractor that serious financial trouble may lie ahead. Most U.S. states usually enforce the clause with certain exceptions. States that either prohibit the use or limit the enforcement of no damages for delay clauses include Colorado, Louisiana, North Carolina, Ohio, Missouri (in public contracts), New Jersey (related to negligence, bad faith, active interference, or other tortious conduct by a public entity), Oregon (if the delay is caused by acts or omissions of the contracting agent or persons acting therefor), Virginia (where such delay is “unreasonable”), Washington (in which the clause has been barred), and Indiana (where such a clause is prohibited in the case of unforeseen conditions encountered during a project).
Contractors argue that such clauses result in higher bids to cover for the potential for uncompensated time-related costs. If a contract also includes liquidated damages provisions, a contractor may be assessed liquidated damages for contractor-caused delay but not be able to recover its time-related costs resulting from owner-caused delays. Owners may also use no damages for delay clauses to prevent one prime contractor from recovering against the owner for delays that other prime contractors caused. Important topics regarding the usage and evaluation of no damages for delay clauses include the following:
- Exceptions in the enforcement of no damages for delay clauses
- The no damages for delay clause and acceleration
- Enforceability of no damages for delay clauses
- Characterizing delay damages
- Use in United States and international construction contracts
To learn more, read the detailed article The “No Damages for Delay” Clause.
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