As many contractors know, a “no-damage-for-delay” provision in a construction contract is onerous because it shifts the risks of delay to contractors who often have absolutely nothing to do with the cause of that delay. While these provisions routinely allow contractors extensions of time to complete their own work, such extensions of time do nothing to offset increased bond and insurance premiums, increased supervision costs and increased home office overhead costs. Because construction contracts are business contracts—and because courts give great deference to business contracts as the product of lengthy negotiations between sophisticated businesspeople—courts will strictly enforce these provisions absent narrow and unusual circumstances.
In 1991, the Connecticut Supreme Court, in White Oak Corp. v Dept. of Transportation (217 Conn. 281), adopted the four exceptions to the enforcement of a no-damage-for-delay clause adopted by New York’s highest court eight years beforehand in Kalisch-Jarcho, Inc. v State (58 NY2d 377 ). Those judicially crafted exceptions will allow recovery even in the presence of a no-damages-for-delay clause where there are: 1) delays caused by the owner’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; and 4) delays resulting from the owner’s breach of a fundamental obligation of the contract. In the recent case of C and H Electric v Town of Bethel (312 Conn. 843 ), the Connecticut Supreme Court reaffirmed the heavy burden that a contractor needs to meet to get around one of these onerous clauses.
In C & H, the Town sought to renovate and expand one of its schools. This school was built in the 1960s and expanded in the 1970s. Typical of schools of that era, the building contained significant quantities of asbestos. Before undertaking the subject construction project, the Town hired an environmental consultant to look for hazardous materials within the school, including asbestos. The consultant indeed discovered asbestos, and the Town hired an abatement contractor to perform the removal work. The Town expected the abatement contractor to complete its work before any new construction.
For some reason, the abatement contractor completed just 70 percent of its work. Although the Town had yet to complete the abatement, it nevertheless moved forward with the construction, believing that the remaining asbestos would not affect the new construction work. C & H contracted with the Town to perform the electrical work for the project. The contract contained a no-damages-for-delay clause which expressly excluded from its scope any claims for “a delay ... caused by acts of the Town constituting active interference with C & H’s performance of the [w]ork....”
Before entering into the contract, the Town openly discussed the remaining abatement work at a number of public meetings. However, the Town did not directly inform C & H about the fact of the incomplete abatement, and C & H was not present at these meetings. As part of the bid materials, the Town did provide C & H with drawings indicating the location of asbestos within the existing school building. Still, the original schedule provided to bidders indicated that abatement would be completed before any construction began. The Town failed to revise the project specifications to reflect that about 30 percent of the abatement work remained incomplete. The Town also did not discuss the progress of the abatement during contract negotiations with C & H, and C & H did not ask about it. Instead, C & H assumed this work would be completed prior to the start of construction.
The Town instructed C & H to commence work in February of 2007. The work went on as planned until the summer of 2007, when the continuing asbestos abatement work interrupted C & H’s work. The Town's abatement contractor barred access to certain areas of the school building, which required C & H to move its crews and equipment to different work areas and repeatedly return to certain work areas as the abatement proceeded. Despite these interruptions, C & H completed its work just about on time. However, C & H incurred extra expenses as a result. When the Town denied C & H’s claim for these extra expenses, C & H sued. To get around the no-damages-for-delay clause, C & H claimed that the Town knew the ongoing asbestos abatement work would interfere with construction but nevertheless ordered C & H to begin its work. In support of its delay claim, C & H asserted that it need only prove that the Town committed some affirmative, wilful act that unreasonably interfered with its work, and that the Town's actions fell within this standard because it actively concealed from C & H the delay in the asbestos abatement work. In addition, C & H argued that the Town's concealment and failure to provide C & H unfettered access to its work sites fell within the judicially crafted exceptions to no-damages-for-delay clauses.
After a trial, the court found that C & H did not meet its burden of establishing either “active interference” by the Town or facts which would fit any of the judicially crafted exceptions to the enforcement of no-damage-for-delay clauses. Connecticut’s Supreme Court upheld the dismissal of C & H’s delay claim.
First, as to the “active interference” exception set forth in the parties’ contract, the Court held that this standard was synonymous with the judicially crafted “bad faith, willful, malicious or grossly negligent conduct” standard. After equating the standards, the Court found that although the Town had specific knowledge of the unfinished abatement work, the Town had no actual knowledge that this unfinished abatement work would interfere with C & H’s work. Therefore, the Court found that any interference which may have been negligently caused by the Town was neither willful nor unreasonable. Additionally, the Court further noted that while it was not imposing any additional requirements on contractor, it did note that as the Town did discuss the existence of remaining asbestos at public meetings it undermined C & H’s argument that the condition was actively concealed.
Next, the Court addressed the only other possibly applicable judicially crafted exception, the owner’s breach of a fundamental obligation. The Court noted that breaching a fundamental obligation involves more than ordinary, garden variety failures. Here, the Court held that the Town’s interference with C & H’s work schedule was minimal—as evidenced by the fact that C & H got the work finished on time—and that C & H could have anticipated the need to re-sequence its work based on the disclosures that the Town did make. Accordingly, any breach by the Town did not rise to the level of the breach of a fundamental obligation sufficient to get around the enforceability of the no-damages-for-delay clause.
In C & H, the Connecticut Supreme Court once again reiterated the high standard that a contractor must show before being able to recover delay damages in the face of a no-damage-for-delay clause. Here, even though an owner had specific knowledge of incomplete abatement work that was likely to interfere with the contractor’s work, the Court held that because the owner did not have specific knowledge that the incomplete abatement work would interfere with the work, the conduct did not rise to the required level. Further, in what could be seen as a perverse twist, the Court found that C & H, by successfully accelerating its performance to work around the owner’s delays, evidenced that the delays were not unreasonable and, therefore, evidenced that there was no breach of a fundamental contractual obligation by the Town which would permit recovery.