By: Alexander A. Miuccio Thomas H. Welby Published: September 2008

Subcontractor Not Entitled to Delay Damages

The “no-damage-for-delay” clause by which a party denies liability when it is responsible for delays has been the subject of much litigation. The clause is found in both private construction contracts and public works contracts and is generally upheld as valid by the courts. There are exceptions, however, to the enforceability of this clause.

In the recent case of Premier-New York Inc. v. Travelers Property Casualty Corp., a court ruled on the enforceability of a no-damage-for-delay provision contained in a subcontract.

Background

Trataros Construction, Inc., a prime contractor, subcontracted with Premier-New York, Inc. to perform the roofing work at Baruch College located in Manhattan. The project was significantly delayed and the subcontractor sued the prime contractor for its delay damages.

The subcontractor argued that as a result of changes to the project schedule and re-sequencing of the work, it was entitled to reimbursement for its additional costs since it was forced to: a) work in winter conditions; b) perform additional and extra work as a result of the installation of the curtain wall prior to the start of roofing work; c) stop and start work as other trades had material stored on the roof or were working in areas needed for the sucontractor’s work; d) move materials by elevator rather than by the hoist; e) have inadequate storage area for its materials; f) work in an inefficient and disrupted fashion; and g.) work for a prolonged period of time during which time there were prevailing wage increases mandated for its workforce.

The prime contractor moved to dismiss the claims for delay damages. The prime contractor did not dispute that the subcontractor incurred extra costs as a result of project delays. Rather, the prime contractor argued that the subcontract’s no-damage-for-delay clause barred the delay damage claims against the prime contractor. The provision stated, “should the Subcontractor’s performance of this Subcontract be delayed…the Subcontractor…shall not be entitled to any increase in the Subcontract Price or to damages or additional compensation…”

The subcontract further required the subcontractor to waive any claim for additional compensation arising from any of the following site conditions: (1) the work was hindered by delays or accelerations of the project schedule; (2) the work was rescheduled; (3) the work was re-sequenced; and (4) the work was interrupted and re-started.

The subcontractor argued that the no-damage-for-delay provision was not enforceable because it fell within the four recognized exceptions to a no-damage-for delay clause. These exceptions are: (1) delays caused by the prime contractor’s bad faith or its willful, malicious, or grossly negligent conduct; (2) uncontemplated delays; (3) delays so unreasonable that they constitute an intentional abandonment of the contract by the prime contractor; and (4) delays resulting from the prime contractor’s breach of a fundamental obligation of the contract.

Decision

The trial court dismissed the delay claims against the prime contractor. The court held that all damages claimed by the subcontractor were a result of project delays, which were expressly waived under the plain language of the subcontract’s no-damage-for-delay clause.

The court relied heavily on established case law upholding the validity of no-damage-for-delay clauses. The court addressed the four exceptions to the enforceability of a no-damage-for delay clause, and held that none of them applied in this case.

With respect to the subcontractor’s claim that the delays were caused by the prime contractor’s bad faith, willful, malicious, or grossly negligent conduct, the court found no evidence to suggest that the prime contractor made intentional misleading representations or withheld material information from the subcontractor before submitting its bid. The court further relied on the subcontract provisions which obligated the bidder to inspect site conditions and investigate the requirements of its work.

In rejecting the subcontractor’s further argument that the delays were uncontemplated, the court noted that “the uncontemplated delay exception only applies if the claimant can demonstrate that the delays were wholly unanticipated.” The court stated that “if the alleged delays were foreseeable under a project’s particular circumstances, or were discussed in the contract, damages arising from those delays are barred.” In relying upon prior case law, the court held that slow or poor performance by other project subcontractors is foreseeable, and that the general contractor’s inept administration of its contract is also foreseeable. According to the court, the subcontractor’s allegations fell within these categories, and therefore the delays were foreseeable risks of construction. Since the delays were anticipated at the time the subcontract was signed, the court ruled that they did not fall within the “uncontemplated delay” exception to the no-damage-for-delay clause.

The court also found no evidence regarding the subcontractor’s claim that the delays were so unreasonable that they constitute an intentional abandonment of the contract.

Finally, the court rejected the subcontractor’s argument that the prime contractor’s conduct constituted a fundamental breach of the contract that would render the no-damage-for-delay clause unenforceable. In support of this argument, the subcontractor claimed that the “sample CPM schedule” provided by the prime contractor with the bid package had been changed and the work was re-sequenced without notice to the subcontractor, forcing the subcontractor to incur additional costs. The court held that the subcontractor’s reliance on the sample CPM schedule was unreasonable, pointing out that the subcontract clearly identified the document as being only a “sample” schedule.

Comment

In New York, the no-damage-for-delay clause is generally enforceable, unless it falls within the four recognized exceptions to its enforcement. The courts are not permitted to rewrite the contract; they will ordinarily enforce the plain language of the no-damage-for-delay clause as written. Contractors and subcontractors should be wary of this clause when negotiating contract terms and conditions.

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