Delay claims are a frequent subject of construction litigation. To reduce the risk of delay claims, many owners and general contractors include a “no damages for delay” clause in their contracts. This provision essentially prevents a general contractor or a subcontractor from recovering monetary compensation for delays that occur on a construction project. This clause is found in both public works contracts and private construction contracts.
New York courts rigorously enforce the “no damages for delay” clause, as shown in the recent case of Polo Electric Corp. v New York Law School.
In 2007, Polo entered into a construction subcontract with Pavarini McGovern to perform electrical work for the construction of New York Law School’s new building. The contract contained the following broadly worded “no damages for delay” clause:
“[Polo] expressly agrees not to make, and hereby waives, any claim for delay costs, loss of productivity or efficiency, lost profits or extended home office overhead, on account of delay, obstruction or hindrance for any cause whatsoever, whether or not foreseeable, whether or not anticipated and whether or not caused by [Polo].”
Pursuant to Polo’s contract, its work was supposed to have been completed by August of 2008. Despite this requirement, Polo was only given access to its principal work areas in July and August of 2008. An oral understanding was reached in which it was acknowledged that the original contract schedule was not achievable, and that Polo’s time to complete was extended until December. When Polo’s work areas were made available, the work environment was haphazard and disjointed such that Polo had to hire additional labor to meet the new deadline.
In early January of 2009, when the work was still not complete, Polo claimed that construction manager Pavarini accelerated the work schedule and assured Polo that any extra expenditures incurred in meeting the accelerated schedule would be reimbursed. Polo submitted additional work authorizations, T&M tickets, lump sum and proposed change orders and other correspondence documenting the work it performed to meet the accelerated schedule. Some of these submissions resulted in formal written change orders from Pavarini, and others were approved by email or orally. Ultimately, Pavarini declined to pay Polo for the extra work. When Polo demanded that Pavarini make payment, Pavarini responded by issuing a deduct change order removing all remaining work from Polo’s contract.
Polo sued on various theories to recover for the unpaid extra work. In response, Pavarini and the owner moved to dismiss the claims, arguing that all of the damages sought by Polo relate to the claimed delay, and that such claims are barred by the “no damages for delay” clause in the contract. Polo opposed, arguing that the “no damages for delay” provision is not enforceable because the delays were not contemplated by the parties at the time of contracting. New York courts have acknowledged that delay not contemplated by the parties is an exception to the enforceability of “no damages for delay” provision. Polo claimed that the delays arose out of the incompetent administration of the project and, therefore, were not contemplated by the parties at the time they entered into the contract. Polo also argued that the delays were caused by willful or grossly negligent conduct, which is another court-made exception to the enforceability of the “no damages for delay” clause.
The trial court dismissed Polo’s delay claims, finding that it was barred by the broad language of the “no damages for delay” clause in its contract. The court rejected Polo’s argument that the root of the delays—inept administration and improper scheduling of the work of different trades—fall within the exceptions to the enforceability of a “no damages for delay” clause. The court noted that parties seeking to enforce the exceptions to the enforceability of such a clause face a “heavy burden”. Finally, the court noted that Polo failed to allege any willful or grossly negligent conduct which would have allowed it to recover as an exception to the no damages for delay clause.
On appeal, the appellate court affirmed the dismissal of the delay claims, holding that the causes of the delays were within the contemplation of the “no damages for delay” clause in the parties’ contract and, therefore, the clause was enforceable.
The “no damage for delay” clause is used by an upstream party to shift the risk of delay downstream. Downstream parties generally lack the bargaining power to change or delete the oppressive terms of a “no damages for delay” clause. The harsh consequence of a “no damages for delay” provision is that the contractor or subcontractor must absorb all of its monetary damages in connection with delays caused by others.
The City of New York took a step in the right direction by recently revising its standard construction contract to eliminate the “no damages for delay” clause and allowing a number of circumstances under which the contractor may be entitled to delay costs. It remains to be seen whether this change in the City’s contract will set a pattern of eliminating the one-sided and unfair terms of a “no damages for delay” clause.
About the author: Mr. Miuccio is a partner of the law firm of Welby, Brady & Greenblatt, LLP and General Counsel to the Construction Industry Council of Westchester & Hudson Valley, Inc. and the Building Contractors Association of Westchester & the Mid-Hudson Region, Inc. Gregory J. Spaun, a partner with the firm, assisted with the writing of this article.