December 3, 2019

Does a No-Damage-for-Delay Clause Also Preclude Acceleration Damages?

Ted R. Gropman and Christine Z. Fan, Pepper Hamilton LLP

Construction contracts often include a “no damage for delay” clause that denies a contractor the right to recover delay-related costs and limits the contractor’s remedy to an extension of time for noncontractor-caused delays to a project’s completion date. Depending on the nature of the delay and the jurisdiction where the project is located, the contractual prohibition against delay damages may well be enforceable. This article will explore whether an enforceable no-damage-for-delay clause is also a bar to recovery of “acceleration” damages, i.e., the costs incurred by the contractor in its attempt to overcome delays to the project’s completion date.

Courts are split as to whether damages for a contractor’s “acceleration” efforts are distinguishable from “delay” damages such that they may be recovered under an enforceable no-damage-for-delay clause. See, e.g., Siefford v. Hous. Auth. of Humboldt, 223 N.W.2d 816 (Neb. 1974) (disallowing the recovery of acceleration damages under a no-damage-for-delay clause); but see Watson Elec. Constr. Co. v. Winston-Salem, 109 N.C. App. 194 (1993) (allowing the recovery of acceleration damages despite a no-damage-for-delay clause). The scope and effect of a no-damage-for-delay clause depend on the specific laws of the jurisdiction and the factual circumstances involved.

There are a few ways for a contractor to circumvent an enforceable no-damage-for-delay clause to recover acceleration damages. First, the contractor may invoke one of the state’s enumerated exceptions to the enforceability of the clause. It is helpful to keep in mind that most jurisdictions strictly construe a no-damage-for-delay clause to limit its application. This means that, regardless of delay or acceleration, courts will nonetheless permit the contractor to recover damages if the delay is, for example, of a kind not contemplated by the parties, due to an unreasonable delay, or a result of the owner’s fraud, bad faith, gross negligence, active interference or abandonment of the contract. See Tricon Kent Co. v. Lafarge N. Am., Inc., 186 P.3d 155, 160 (Colo. App. 2008); United States Steel Corp. v. Mo. P. R. Co., 668 F.2d 435, 438 (8th Cir. 1982); Peter Kiewit Sons’ Co. v. Iowa S. Utils. Co., 355 F. Supp. 376, 396 (S.D. Iowa 1973).

Second, a contractor may recover acceleration damages despite a no-damage-for-delay clause if the owner or general contractor denies the contractor’s valid request for a time extension. No-damage-for-delay clauses typically provide that the only remedy for a contractor is an extension of time. Should the contractor be deprived of this sole remedy under the clause, the owner and/or general contractor’s denial of the request would constitute a material breach of contract, thus allowing the contractor to recover damages. Multiple courts have allowed the recovery of damages in these instances. See, e.g., Cent. Ceilings, Inc. v. Suffolk Constr. Co., Inc., 91 Mass. App. Ct. 231, 237 (2017) (precluding the general contractor from invoking the no-damage-for-delay clause where it failed to grant an extension of time to the subcontractor); Watson Elec. Constr. Co., 109 N.C. App. at 199 (holding that damages for breach of contract are recoverable despite a no-damage-for-delay clause if the owner fails to properly grant an extension of time for its delay).

Finally, acceleration damages that do not flow as a consequence of delays may also be recoverable. Contractors may try to characterize the costs incurred as costs arising solely from impacts or disruptions to their performance, and not acceleration efforts to recover project delays. This approach has received inconsistent results across jurisdictions. For example, the U.S. Court of Appeals for the District of Columbia Circuit recognized the distinction between claims for delay versus disruption and awarded disruption damages to a contractor despite the presence of a no-damage-for-delay clause. United States Indus. v. Blake Constr. Co., 217 U.S. App. D.C. 33 (1982). Similarly in Massachusetts, a court found that a no-damage-for-delay clause precluded only damages that are attributable to delay and did not bar damages that would have been incurred even if performance had been timely. Paul Hardeman, Inc. v. United States, 406 F.2d 1357, 1362 (U.S. Ct. Cl. 1969). Yet, a separate court in Massachusetts found that working piecemeal, out of sequence, and in winter weather constituted delays, and thus any damages incurred were still precluded under a no-damage-for-delay clause. B.J. Harland Elec. Co. v. Granger Bros., Inc., 510 N.E.2d 765, 767 (Mass. App. Ct. 1987). As acceleration is often closely linked to delays on a project, using this approach to bypass the no-damage-for-delay clause is certainly far from perfect.

In conclusion, contractors could face hurdles in trying to recover acceleration damages under a valid no-damage-for-delay clause. Some of the methods available to bypass the clause include invoking any of the recognized exceptions to the clause or pursuing breach of contract damages for the owner or general contractor’s denial of a time extension. However, based on the inconsistent rulings across the courts, the results of these efforts are largely jurisdiction-specific.

Pepper Hamilton’s Construction Practice Group has an unparalleled record of resolving complex construction disputes and winning complex construction trials. Our lawyers counsel clients on some of the biggest, most sophisticated construction projects in the world. Chambers USA named our firm Construction Law Firm of the Year in 2018, and we are nationally ranked in Chambers USA, The Legal 500 United States, and U.S. News / Best Lawyer. With a national network of attorneys across 14 offices, including many with first-chair trial experience, we have the depth and breadth to try cases of any complexity, anywhere at any time. For more information about Pepper’s Construction Practice, visit www.constructlaw.com.