No Damage for Delay Clause in Construction Contracts
April 6, 2017
In short, “no damage for delay” clauses prohibit project participants from entitlement to damages caused by delay. In lieu of damages, project participants typically are only entitled to an extension of time to complete their work. These clauses are vitally important (and often the subject of terse negotiations) because they protect some project participants from potentially catastrophic damages and, correspondingly, expose others to the same.
In Central Ceilings, the “no damage for delay” clause provided, in pertinent part, “The Subcontractor agrees that it shall have no claim for money damages or additional compensation for delay no matter who caused [but shall instead] be entitled only to an extension of time for performance”. Central Ceiling argued it was not delayed. Indeed, the project was completed timely. Rather, Central Ceiling argued Suffolk’s numerous breaches caused it to suffer numerous inefficiencies and loss of productivity (e.g., assigning additional workers to achieve timely completion, excessive office time coordinating changes and processing associated paperwork, etc.).
The Court in Central Ceilings focused on the meaning of “delay damages”. Central Ceilings argued delay damages means “the cost of an idle workforce”. Suffolk argued delay damages encompassed all damages “caused by delays”. The Court agreed with Central Ceilings.
A properly drafted “no damage for delay” clause avoids all such nuances. For example, a comprehensive clause would include a broad variety of damages including delay, lost productivity, impact damages, increased costs to perform, interferences, hindrances, etc. A less comprehensive clause would include some but not all of the foregoing.
Unquestionably, “no damage for delay” clauses generate some of the most “robust” contract negotiations. If, however, a lack of consensus on a typical “no damage for delay” clause threatens the parties’ ability to enter into a contract, these clauses can be modified in many respects (e.g., grace period before such damages become compensable, scaling damages to duration, capping damages, etc.). If despite such modifications the parties still cannot reach consensus, then other clauses can be modified to bridge the disagreement gap (e.g., liquidated damage clause, early completion bonus, payout of residual contingencies, etc.).
In summary, “no damage for delay” clauses play a vital role in construction projects. Contract drafters must ensure the language they use effectively accomplishes their objectives. If negotiations stall over the typical clause, changes can be made to such clause or other clauses to reach consensus.