February 2012

Claims seeking compensation for delays in completion are a frequent source of litigation. Delays force a contractor to spend more money on manpower and material. Moreover, because a delayed contractor is forced to spend time completing the delayed project, it is unable to devote resources to other projects or potential projects. Therefore, the monetary value of delay claims is often significant. Because of this, many construction contracts contain “no damage for delay” clauses, which prevent contractors from recovering damages for delays encountered on a project.

 1. Spotting a “No Damages for Delay” Clause.

An example of typical no damage for delay clause language appears at Section 8.3.1 of the AIA 201-1997 general conditions that state:

 “If the Contractor is delayed at any time in the commencement or progress of the Work by an act or neglect of the Owner or Architect, or of an employee of either, or of a separate contractor employed by the Owner; or by changes ordered in the Work; or by labor disputes, fire, unusual delay in deliveries, unavoidable casualties or other causes beyond the Contractor’s control; or by delay authorized by the Owner pending mediation and arbitration; or by other causes that the Architect determines may justify delay, then the Contract Time shall be extended by Change Order for such reasonable time as the Architect may determine.”

 2.  Enforcement of “No Damages for Delay” Clauses.

Ordinarily, “no damages for delay” clauses are enforceable. James Corp. v. N. Allegheny Sch. Dist., 938 A.2d 474, 484 (Pa. Commw. Ct. 2007). However, the extent of enforceability often demands on state specific statutory law and common law. Under federal law, a contractor can only recover delay damages against the government when the government agency actively interfered with the contractor’s work. Cite.

a. Pennsylvania and New Jersey law.

Pennsylvania law recognizes exculpatory provisions in a contract cannot be raised as a defense where (1) there is an affirmative or positive interference by the owner with the contractor’s work, or (2) there is a failure on the part of the owner to act on some essential manner necessary to the prosecution of the work. Henry Shenk Co. v. Erie County, 319 Pa. 100, 178 A. 662 (1935). Thus, affirmative or positive interference sufficient to overcome the “no damages for delay clause” may involve availability, access or design problems that pre-existed the bidding process and were known by the owner but not by the contractor. Coatesville Contractors & Eng’rs, Inc. v. Borough of Ridley Park, 509 Pa. 553, 506 A.2d 862 (1986).

Similarly, an owner cannot insulate itself from a delay damage claim where it fails to perform an essential contractual duty. Gasparini Excavating Co. v. Pa. Tpk. Comm’n, 409 Pa. 465, 187 A.2d 157 (1963) (owner with contract responsibility for contractor cooperation pursuant to “predetermined program” directed contractor to proceed, but contractor prevented from accessing work area for five months because of another contractor); Commonwealth of Pa., State Highway & Bridge Auth. (Penn–DOT) v. Gen. Asphalt Paving Co., 46 Pa.Cmwlth.114, 405 A.2d 1138 (1979) (owner assumed responsibility for negotiating relocation of water line, but failed to do so expeditiously, resulting in denial of access while water line relocated by others). Guy M. Cooper, Inc. v. E. Penn Sch. Dist., 903 A.2d 608, 614 (Pa. Commw. Ct. 2006).

In New Jersey, the no damage for delay clauses are legal but, are “generally construed strictly against its draftsman,” and “special exceptions are often read into it” Ace Stone, Inc. v. Wayne Township., 47 N.J. 431, 434, 221 A.2d 515 (1966).

Like Pennsylvania, New Jersey recoginizes the active interference exception. A. Kaplen & Son Ltd. v. Housing Authority of Passaic, 126 A.2d 13 (App.Div.1956). New Jersey also recognizes an exception to no damages for delay clauses when a party’s “conduct indicates bad faith or some other tortious intent.” Edwin J. Dobson, Jr., Inc. v. State, 526 A.2d 1150, 1153 (App. Div. 1987).

Therefore, under both Pennsylvania and New Jersey law, a contractor can still recover damages for delays encountered on the project when the delays were caused by the active interference of the owner or counterparty to the contract.

b. Federal law.

Contractors performing work on projects owned by the Federal government must look to Federal law to see if they can recover monetary damages for delays. Under Federal law, a contractor may only recover if it can establish that the government alone delayed the work by actively interfering with the contract or by failing to prefer an act essential for the work to proceed, such as issuing a timely and necessary change order. P.R. Burke Corp. v. United States, 277 F.3d 1346, 1359-60 (Fed. Cir. 2002).

The takeaway?  Because your recovery under a no damage for delay clause depends on your ability to prove active interference, you need to document the owners actions that are impacting your work at the time they are happening.  Do not wait.

I am pleased to announce that the Federal District Court for the Eastern District of Pennsylvania has granted my Motion for Summary Judgment against the City of Philadelphia involving the demolition of a property by the City’s infamous Department of License and Inspections.  A copy of the opinion is available here.  Bullard v. City of Philadelphia Opinion

The Federal Court held that the City’s Department of License and Inspection violated my client’s constitutional right to due process of law when it failed to adequately notify my client of its intention to demolish a property he was rehabilitating and failed to give him an opportunity to present his objections to the Department’s arbitrary decision to demolish a property he was in the process of constructing.

Sadly, we hear that the Department demolition of  properties through its “emergency abatement program” without affording property owners with an opportunity to be heard is all too common.  Hopefully, this recent decision will have the effect of changing their unconstitutional big government practices.