The “no-damages-for-delay” clause found in many public construction contracts and some private contracts continues to vex contractors. New York courts generally bar a contractor’s delay claim where the contract contains a so-called no-damages-for-delay clause. This provision bars claims by the contractor for damages due to delay caused by the owner.
There are recognized exceptions, however, to the no-damages-for-delay clause. It will not be enforced against the contractor where (1) the delays are caused by the owner’s bad faith or willful, malicious, or grossly negligent conduct, (2) the delays are uncontemplated, (3) the delays are so unreasonable that they constitute an intentional abandonment of the contract by the owner, and (4) the delays resulted from the owner’s breach of a fundamental obligation of the contract.
In the recent case of Dart Mechanical Corp. v. City of New York, the contractor attempted to prove that the project’s 32-month delay fell within at least one of the exceptions to the enforceability of the no-damage-for-delay clause.
In June 1999 Dart Mechanical Corp., a prime contractor, entered into a $3,637,000 agreement with the New York City Department of Sanitation to provide HVAC work at the construction project known as New Annex Building, Queens Sanitation District 7. The project was delayed 32 months beyond the originally scheduled 36 month completion period. At the end of the project the contractor submitted a $1,300,000 delay claim to the City, consisting of summaries of additional costs, charts, and tables relating to delay and wage escalation analyses. In rejecting the contractor’s request for additional compensation, the City relied on the no-damages-for-delay clause contained within the parties’ agreement. The clause stated, “The Contractor agrees to make no claim for damages for delay in the performance of this Contract occasioned by any act or omission to act of the City or any of its representatives, and agrees that any such claim shall be fully compensated for by an extension of time to complete performance of the work as provided herein.”
The contractor argued that this provision was inapplicable since (1) the City’s failure to timely terminate the project’s general contractor who was primarily responsible for the delay amounted to gross negligence and demonstrated willful misconduct; (2) the delays were uncontemplated; and, (3) the City breached a fundamental obligation of the contract by failing to timely terminate the general contractor. When the City refused to pay, the contractor sued. The City moved for summary judgement, relying on the contract’s no- damages-for-delay provision. The trial court awarded summary judgement in favor of the City and the contractor appealed.
The appellate court affirmed the trial court’s decision, relying on well established case law upholding the validity of no-damage-for-delay clauses. According to the court, the delay did not fall within on
e of the four exceptions to the enforceability of the no-damages-for-delay clause. The court rejected the contractor’s claims that the delays were caused by the City’s gross negligence, or bad faith, and that the City’s failure to timely terminate the general contractor amounted to a breach of a fundamental obligation of the contract. The court noted that the City retained a construction manager and scheduling consultant to set and maintain a schedule for project completion, that regular progress and scheduling meetings were held, that the City and their representatives repeatedly requested that the delinquent general contractor adhere to the schedule, and that the City had no affirmative obligation to terminate the general contractor. Under those circumstances, the court stated that it could not see any evidence of gross negligence, willful misconduct or any breach of a fundamental obligation of the contract on the part of the City.
In rejecting the contractor’s claim that the delays were uncontemplated at the time the contract was entered into between the parties, the court pointed out that the contract recognized that delays may be caused by other contractors for which the City would not be responsible. The contract contained an exculpatory clause which recognized the fact that delays may be caused by other contractors. The contract provided that the City is relieved from liability for such delays of other contractors. The court also noted that when an owner uses multiple co-prime contractors, as in this case, the risk of delay by the other co-primes is foreseeable, and therefore cannot be considered uncontemplated.
Finally, although the contractor never argued that the delay was an abandonment of the project by the City, the court also noted that the evidence did not demonstrate any action by the City to suggest that it had any intention of abandoning the project.
This case demonstrates the heavy burden a contractor must overcome to establish an exception to the no-damage-for-delay clause. It appears that this contractor at the time of contract did not foresee or contemplate that the project would be delayed 32 months beyond the 36 month contract completion period. It seems unfair for a contractor to be saddled with the heavy cost of such an unforeseen delay caused by others.
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. Adam W. Downs, an associate with the firm, assisted with the preparation of this article.