September 07, 2017

Subcontractor's Forced Acceleration Not Always Barred By No Damage for Delay Clause

Ryan D. Sullivan

Subcontractors and specially-manufactured suppliers often fall victim to delays in the work of others on a multi-tiered construction projects.  This forces them to accelerate or compress their time of performance resulting in costly inefficiencies.  Whether they will be compensated for the financial impact of such inefficiencies, however, is dictated by the terms of (1) the applicable contract or purchase order with their customer, or (2) certain narrow exceptions available in many jurisdictions.  Subcontractors and suppliers subject to contracts featuring so-called “no-damage-for-delay” clauses often conclude, prematurely, that they are not entitled to additional compensation or financial damages they have suffered in an effort to recover the schedule or minimize delays caused by others.  A recent Massachusetts Appeals Court decision should inspire subcontractors, suppliers and their counsel to carefully consider the breadth of the “no-damage-for-delay” clauses at issue, and, when appropriate to fight for additional compensation.

Central Ceilings

In Central Ceilings, Inc. v. Suffolk Construction Co., Inc., 91 Mass. App. Ct. 231 (2017), Suffolk Construction Co., Inc. (“Suffolk”) appealed the lower court’s decision following a bench trial that awarded Central Ceilings, Inc. (“Central”) $321,315 in damages that it determined to be Central’s net loss in labor productivity after applying the “Total Cost” method (Actual Cost less Bid Cost).  The trial court found that Suffolk had failed to properly coordinate its subcontractors’ work on the project and provide timely plans, resulting in a stacking of the trades where Central was required to work at times in the same part of the building as other subcontractors, and to sit idle until work earlier in the critical sequencing was completed ahead of it.  Told on a number of occasions by Suffolk personnel that there would be no extension of the schedule, Central increased its man-hours to recover the schedule. 

Suffolk relied upon its “no-damage-for-delay” clause in rejecting Central’s request for additional compensation as a result of the impacts.  Suffolk’s “no-damage-for-delay” clause was not atypical:

The Subcontractor agrees that it shall have no claim for money damages or additional compensation for delay no matter how caused, but for any delay or increase in the time required for performance of this Subcontract not due to the fault of the Subcontractor, the Subcontractor shall be entitled only to an extension of time for performance of its Work. Written notice of all claims for any extension of time shall be submitted to Contractor within ten (10) days of the date when Subcontractor knows (or should know) of the event which causes such delay, or such claim shall be considered waived by Subcontractor.

Id. at 241 (emphasis added).

As an initial matter, the trial court found, and the Appeals Court agreed, that by making it clear to Central that no extensions to the schedule would be granted, Suffolk deprived Central of a material contractual benefit: the right to seek an extension of time for the performance of its work due to delay caused by others.  Central was therefore left with no choice but to accelerate its work, or face the prospect of a claim by Suffolk for delays in its performance. 

In rejecting Suffolk’s argument that the “no-claim-for-delay” clause barred Central’s claim, the Appeals Court held such clauses are to be narrowly construed and held that Central’s claim was not a claim for delay, but rather a claim incurred in recovering the schedule.  In other words, the damages suffered by Central were not for its workforce’s idle time, but rather for the inefficiencies forced upon it by both the delays, and Suffolk’s refusal to grant it extensions in the time for performance. 

In the wake of Central, general contractors should be reminded to review their subcontracts to ensure that they exculpate claims for impacts like those suffered by Central.  For example, general contractors may require subcontractors to expressly acknowledge that changes in the schedule may be made, and to waive any claim for damages arising out of, or related to any alterations in the sequencing or scheduling of the work, including but not limited to claims for excess labor costs, and additional equipment costs. 

Broader Drafting Can Eliminate Claims for Impacts

One example of language held to be sufficiently broad to bar claims like those asserted by Central is found in Quinn Const., Inc. v. Skanska USA Bldg., Inc., 730 F. Supp. 2d 401 (E.D. Pa. 2010)(“Quinn”).

Like Central, the Plaintiff in Quinn sought to recover from the general contractor its expenses incurred in accelerating its work following delays caused to it by others.  The Court, however, granted Skanska’s Motion for Summary Judgment as to the delay and impact claims finding that certain section of the applicable subcontract “preclude Quinn from recovering against Skanska for its delay damages and its disruption damages due to inefficiencies from accelerating work…” Id. at 411.  Unlike the subcontract at issue in Central, the Quinn contract included an acknowledgment that the general contractor was “not liable, absent actual fraud, for any damages or costs due to delays, accelerations, impact, non-performance, suspension or changes in the performance or sequence of [the subcontractor’s work].”  Id. at 405. 

Including more expansive language barring claims relating to or arising out of delays caused by others, including claims due to forced acceleration, or inefficient sequencing will not, however, protect general contractors in all circumstances in all jurisdictions.  California, New York, Pennsylvania, Texas and Virginia, have adopted exceptions to otherwise enforceable “no-damage-for-delay” clauses.  Statutory exceptions are in place in many jurisdictions, although the majority of such exceptions are applicable only to public projects.  In New York, Pennsylvania, Texas and a number of other states, exceptions have been applied to limit the applicability of “no-damage-for-delay” clauses.  A survey of the statutory and doctrinal exceptions that have developed across the country is not within the scope of this article, however, a brief recognition of their commonality is appropriate.  See Woods & Aiken, LLP, 50 State Matrix Pay-If-Paid, No Damage for Delay, (February 2012) https://www.woodsaitken.com/wp-content/uploads/2012/02/Survey_50-State-Matrix_Pay-If-Paid_No-Damage-for-Delay.pdf1

Public Policy and Statutory Exception to No-Damage-For-Delay Clauses

While in no way uniform, the exceptions adopted by most jurisdictions to the enforceability of “no-damage-for-delay” clauses were aptly described by the Nevada Supreme Court as follows:    

(1) Willful concealment of forseeable circumstances that impact timely performance, (2) delays so unreasonable in length as to amount to project abandonment, (3) delays caused by the other party’s bad faith or fraud, and (4) delays caused by the other party’s active interference.

J.A. Jones v. Lehrer McGovern Bovis, 120 Nev. 277, 286 (2004). 

A common theme among all these exceptions—save for “delays so unreasonable in length as to amount to project abandonment”—is bad faith or active interference with performance. Through reliance on the universally accepted duty of good faith and fair dealing among parties to a contract, jurisdictions adopting these or substantially similar exceptions to the “no-damage-for-delay” have refused to reward a party acting in bad faith simply because it had an artfully drafted contract. 

Nevertheless, reliance upon such exceptions to provide for later compensation is risky business.  The burden on one seeking to demonstrate any one of these exceptions is high as they require an element of scienter rising to the level of a “willful” act or “knowing” concealment of material facts.  They will not save the unwitting party from the usual suspect causes of “delays” such as improper coordination, mismanagement, excessive changes, or even general stupidity. 

Had the subcontract in Central included broader language prohibiting claims not only for delays, but for costs of recovering the schedule, Central’s claims against Suffolk would likely have been barred, with no clearly applicable exception.  There was no allegation that Suffolk purposefully delayed Central’s work, committed fraud, or concealed from Central facts that would have made clear at the time Central executed the subcontract that its work could not be performed on the budget it had projected.  Rather, the only conduct outside of failing to properly manage the work of others attributable to Suffolk was that Suffolk refused to grant Central extensions of time as required by the Subcontract.  In the absence of the narrow “no-damage-for-delay” clause in its subcontract, Central’s only choice would have been to submit its request for extra time, and proceed with its work without accelerating, betting on the fact that it was entitled to the extension requested.  Losing that wager would have left it with overwhelming back charges from Suffolk. 

Conclusion

Any party without an express obligation to accelerate its work facing a “no-damage-for-delay” clause of uncertain breadth, would be wise to submit a clear written request to the party responsible for its delay to either 1) agree to compensate it for its costs of acceleration, or 2) to accept its performance based on a new schedule adjusted for the delays suffered.  With any luck, such a request will yield a responsive directive acknowledging the added costs and instructions to proceed with acceleration, or acknowledging the extension of time, the former supporting a claim of bad faith in the event that the other party refuses to compensate for the accelerations costs in the future.  Regardless, subcontractors should not assume that the impacts they’ve suffered will be excused by a “no-damage-for-delay” clause in their subcontract until they’ve carefully considered the language of the subcontract, the circumstances causing delay, and the conduct of the party responsible for such delay. 

Endnote

1. The referenced survey does not consider whether each of the jurisdictions would allow for recovery of costs incurred as a result of forced acceleration notwithstanding an otherwise enforceable “no damage for delay” clause.

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Ryan D. Sullivan

Sullivan Legal, PC, South Boston, MA, Division 9 (Subcontractors & Suppliers)