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

Court Rejects Delay Claim

New York courts will generally bar a contractor’s delay claim when the contract contains a so-called “no-damages-for-delay” clause. There are recognized exceptions, however, to the no-damages-for-delay clause. It will not be enforced where the delays were: (a) not contemplated by the parties at the time the contract was entered into; (b) caused by bad faith or willful, malicious or grossly negligent conduct; (c) so unreasonable that it constituted an intentional abandonment of the contract; or (d) resulted from breach of a fundamental obligation of the contract.

The same exceptions apply where there is a no-damages-for-delay clause in a contract between a general contractor and a subcontractor. In the recent case of Commercial Electrical Contractors, Inc. v. Pavarini Construction Co., Inc., the subcontractor sought to avoid the enforceability of the no-damages-for-delay clause by arguing the exceptions outlined above.

Background

Pavarini Construction Co., Inc., a general contractor, contracted with Commercial Electrical Contractors, Inc., an electrical subcontractor, to perform work at the Museum for American Folk Art. The prime contract was incorporated by reference into the parties’ subcontract, and both contained no-damages-for-delay clauses. Upon project completion, the electrical subcontractor sought to recover damages due to delays caused by the general contractor’s improper scheduling and organization of subcontractors, changes to the work, and failure to provide temporary heating. According to the electrical subcontractor, this conduct constituted gross negligence, was unanticipated, and delayed the project anywhere from 8 to 20 months.

After the general contractor refused to compensate the electrical subcontractor for the delay, the subcontractor sued. In moving for summary judgment, the general contractor argued that the damages sought for the delay were barred by the no-damages-for-delay clauses. The general contractor also noted that the owner clearly retained the right to make changes or modifications to the work, and the prime contract included a procedure to deal with delays. The trial court granted the general contractor’s motion for summary judgment, and dismissed the subcontractor’s claims for delay damages. The subcontractor appealed.

Decision

The appellate court affirmed the trial court’s decision. The appellate court held that no-damages-for-delay clauses are unenforceable if the delays were caused by the contractor’s bad faith or its willful, malicious, or grossly negligent conduct; were uncontemplated; were so unreasonable that they constitute intentional abandonment of the contract; or resulted from breach of a fundamental obligation under the contract. The court found no evidence to indicate that the conduct of the contractor was the result of gross negligence or willful misconduct. Instead, the court stated that the conduct amounted to nothing more than inept administration or poor planning, which falls within the contract’s exculpatory no-damage-for-delay clause.

The court also held that it was reasonably foreseeable that there would be changes to the work, such as changes to room dimensions, and delays of the types involved on this project. Lastly, the court stated that the delay was not long enough to qualify as abandonment of the contract.

Comment

No-damages-for-delay clauses are routinely upheld by the courts. Though usually just a short paragraph, the effect of the clause can be significant. Often, otherwise valid claims are completely barred. Contractors should be wary of this clause when negotiating contract terms and conditions. Inclusion of the clause quite likely will bar a contractor’s right to compensation for legitimate project delays.

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