Delay claims are a frequent source of construction litigation. To reduce the risk of delay claims, many owners, construction managers and general contractors include a “no damages for delay” clause in their contracts. This provision exonerates them from liability to a contractor or subcontractor for damages resulting from delays in the performance of their work.
New York courts continue to rigidly enforce the no damages for delay clause, as demonstrated in the case of J. Petrocelli Contracting, Inc. v The Morganti Group, Inc.
In April of 2008, the New York City Department of Design and Construction entered into a contract with Morganti for construction management and other related services for the construction of the Kings County Criminal Courts Building. Morganti subsequently entered into a subcontract with Petrocelli for certain construction work at the project. Paragraph 6(a) of the Subcontract provided that “[Morganti] shall not be liable to [Petrocelli] for any damages resulting from delays caused by any entity”, and that “[Petrocelli] expressly agrees that apart from recovery from said entity, [Petrocelli’s] exclusive remedy for delay shall be an extension of the time for performance of [Petrocelli’s] work”. The subcontract provided that Petrocelli’s work was to have been completed by November 15, 2010.
After work commenced, Petrocelli encountered considerable delays in performing its work. Substantial completion was not achieved until June of 2013—31 months late. In its lawsuit against Morganti to recover delay damages, Petrocelli claimed that the delays were caused, among other things, by: (a) Morganti’s failure to comply and enforce their own contract bid phasing plan; (b) Morganti’s review or issuance of change orders, constant revision of change orders and execution of same; (c) Morganti’s failure to make the bid document phasing plan available to Petrocelli, which materially affected the date for final completion; (d) differing site conditions that were not known by Petrocelli but reasonably ascertainable by Morganti prior to bid requests; (e) numerous changes in the original scope of work provided for and agreed to by the parties as set forth in the bid and contract documents; and (f) other uncontemplated delays by the parties. Petrocelli claimed that these delays prevented it from working for extended periods of time and caused Petrocelli a complete loss of sequencing and continuity. Morganti moved to dismiss Petrocelli’s lawsuit based on the exculpatory language of the no damages for delay clause.
The court agreed with Morganti and dismissed Petrocelli’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 Petrocelli’s argument that the causes of the delays fall within the exceptions to the enforceability of a no damages for delay clause for bad faith or willful, malicious, or grossly negligent conduct. The court found that, at most, Morganti’s conduct constituted inept administration and improper scheduling of the work of different trades. The court also found that Petrocelli failed to demonstrate that the delays were uncontemplated at the signing of the contract, were so unreasonable that they constitute an intentional abandonment of the contract by Morganti, or resulted from Morganti’s breach of a fundamental obligation of the contract. The court noted that the inclusion of the no damages for delay clause was evidence that such delays were specifically contemplated.
On appeal, the appellate court affirmed the dismissal of the delay claims, relying on the contractual language which plainly provides that the construction manager “shall not be liable to the [subcontractor] for any damages resulting from delays caused by any entity”. The court also looked to the clause where the subcontractor expressly agreed that its sole remedy for delay shall be an extension of time to complete its work.
The harsh consequence of a no damages for delay provision is that the contractor or subcontractor must absorb all of its monetary damages arising out of delays caused by others. They generally do not have the bargaining power to change or delete the oppressive language of the no damages for delay clause.
Here, the court once again reminds us that the exceptions to the enforceability of such a clause are extremely limited. Similar to the cases highlighted in previous Attorney’s Columns, where the courts found that delays of 27 and 32 months have been contemplated by the contract, one is left to wonder whether any categories of delay can be found not to have been contemplated by the parties at the time of contract.