Construction Contracts: No Damage for Delay Clauses – Revisited

No damage for delay clauses have routinely been upheld by Massachusetts courts. These clauses typically provide that a subcontractor’s sole remedy for delays caused by others, including the general contractor or the owner, is a time extension. This means that subcontractors who have a no damage for delay clause in their subcontract are generally unable to recover for damages incurred due to delay such as extended general conditions, working out of sequence, slipping into winter conditions or overtime. In Central Ceilings, Inc. v. Suffolk Construction Company, Inc., a trial court found a way to work around a no damage for delay clause and offered a roadmap of a potential argument to avoid the harsh reality of these clauses. While this is a trial court decision (not an appellate court decision) and therefore not binding, it provides helpful insight into how a court may analyze these clauses so as to avoid enforcement.

Central Ceilings was a construction subcontractor to Suffolk Construction. Central brought suit against Suffolk and its surety alleging breach of contract and quantum meruit. It sought to recover, among other things, damage for loss of productivity due to design deficiencies and Suffolk’s alleged failure to adequately manage and coordinate the project. The evidence at trial demonstrated that the work was not properly coordinated such that necessary prior trades had completed their tasks before Central needed to do its work. For example, the site was not timely or properly prepared to receive Central’s work thereby causing demobilization and remobilization, stacking of trades, “go back” work and a compressed schedule requiring increased and not budgeted for manpower and supervision.

Suffolk argued that even assuming that these problems existed and resulted in monetary harm, Central was barred from recovery because these damages resulted from project delays and therefore were barred due to the subcontract no damage for delay clause. Central countered, however, that these were not delay damages because, in fact, Central brought the project in timely although it was forced to accelerate and alter the sequence of its work to do so. Moreover, the situation was exacerbated because Suffolk refused to grant any time extensions despite notice that its omissions were impacting schedule.

The Court first noted that even assuming  that these were delay damages, they were not caused by Central. Therefore, under the terms of the no damage for delay clause, Central Ceiling “shall be entitled” to an extension of time. Suffolk’s refusal to give a time extension in and of itself was a breach thereby entitling Central to damages.

Alternatively, the Court drew a distinction between “delay” damages and damages due to “hindrances and interferences.”  Relying on prior cases, the Court defined delay damages as time lost when work cannot be performed, i.e. the cost of an idle workforce. In contrast, here Central was not seeking to recover for lost time, but rather for lost productivity and increased costs due to out of sequence work. Far from having its workforce idle, Central was forced to increase its workforce and compress its schedule. According to the Court, these were not delay damages, and therefore not barred by the no damage for delay clause.

Though not an appellate decision, this well-reasoned decision reflects a judicial tendency to narrowly construe no damage for delay clauses. Assuming that this also reflects the trend in Massachusetts, there are several steps a contractor can take to increase the likelihood that a no damage for delay clause does not bar recovery:

1. Read your no damage for delay closely before signing the contract. If you have a no damage for delay clause, you may be able to negotiate it out at contract formation or, at least, go into the relationship with your eyes open. These clauses are usually found in the small print boilerplate or buried somewhere else in the contract. Take the time to read your contract. You would be amazed at what’s there!
2. Be very leery if the no damage for delay clause in your contract covers not just delays, but also “hindrances or interferences.” Clauses with that verbiage are even broader than the typical no damage for delay clauses. At a minimum, try to negotiate that language out.
3. No damage for delay clauses are not uncommon, though clearly disfavored by the Court. Some states do not uphold them, though Massachusetts does. Therefore, if working in another state or if your contract designates another state’s law as the applicable law, consult with counsel in that state to see if there are any quirks about which you should be aware. Even in your own home state, establishing a relationship with competent counsel and having your contracts reviewed before you sign will save you money in the long run and allow you to conduct a risk assessment before signing on to a contract that could be problematic if the job runs into trouble.
4. Document, document, document. TheCentralcourt underscored that Central had repeatedly advised Suffolk of the problems and schedule impacts caused by the failure to have the site ready for Central’s work, yet despite this notice Suffolk did not rectify the problems. As a purely equitable matter, Central came in wearing the “white hat.”
5. Document not only the problems, but your response to them. If you are forced to work out of sequence, demobilize, come back to remove or repair prior work due to other trades’ work, make sure the general contractor and/or owner is aware of this problem and that you track your increased costs. Increased costs are often hard to prove and link causally to the delay. Integrating a sophisticated cost tracking system into your usual business practices will undoubtedly pay dividends on multiple levels.
6. Put in for your time extension. The no damage for delay clause in this case made time extensions mandatory. Suffolk did not help its cause by refusing to allow an extension. One wonders, however, had Suffolk granted the extension would this case have been decided differently because then there would have been a documented delay. Still, insofar as no damage for delay clauses are usually upheld, putting in for the time extension would still be prudent, while expressly reserving the right to claim damages.