Are No-Damage-for-Delay Provisions Worth the Paper they are Written On?

No-damage-for-delay provisions are routinely inserted into construction contracts to protect the upstream party in the event of a delay during the course of a project. However, many states have passed statutes declaring that such provisions are void and unenforceable on public policy grounds. Other states recognize exceptions that can prevent the enforcement of such clauses. Those exceptions typically include fraud, bad faith, or gross negligence by the upstream party, active interference, and unexpected or unreasonable delays. With the growing breadth of statutes and exceptions, one has to wonder whether the enforcement of a no-damage-for-delay provision has become the exception rather than the rule.

A recent case in Kentucky federal district court concerning a federal project involving a Miller Act bond reminds us that such clauses are void in Kentucky based on the Kentucky Fairness in Construction Act, which was adopted in 2007. However, the Court went much further than just stating the clause is not enforceable under Kentucky law. The Court arguably concluded that no-damage-for-delay-provisions are simply not enforceable by any Miller Act surety.

In United States v. Safeco Ins. Co. of America, a masonry subcontractor brought suit asserting damages associated with delays arising during the completion of the project. One of the claims asserted by the masonry subcontractor was against Safeco Insurance Company of America, which issued the payment bond required by the Miller Act to secure payment for subcontractors on the project. The Miller Act surety responded that it was not liable for the delay damages being asserted by the masonry subcontractor because the masonry subcontract included the following no-damages-for-delay provision:

“Subcontractor shall not be entitled to any claim for damages (including but not limited to claims for delay …) on account of hindrances or delays from any cause whatsoever. An extension of time shall be Subcontractor’s sole and exclusive remedy for any occurrence giving rise to a delay, and [general contractor] shall be released and discharged of and from any claims for damages which Subcontractor may have on account of any cause of delay, whether or not specifically stated herein…”

After recognizing the existence of the no-damage-for-delay provision, the Court relied on language in the Miller Act statute to conclude that the clause “is void under the Miller Act.” The Miller Act provision the Court relied on states, “[a] waiver of the right to bring a civil action on a payment bond … is void unless the waiver is – (1) in writing; (2) signed by the person whose right is waived; and (3) executed after the person whose right is waived has furnished labor or material for use in the performance of the contract.” 40 U.S.C. 3133(c). Based on this language the Court concluded that the no-damage-for-delay provision executed at the inception of the project before any delays occurred effectively functioned as a waiver of the right to bring a civil action and was thus void. It is not known whether this decision will be broadly accepted, nor how those involved in construction contract drafting will react. However, in light of this case, one has to wonder whether no-damage-for-delay provisions will start appearing in the payment/claim waivers executed throughout the course of a federal project to make the provision (waiver) arguably valid under the Miller Act.

 

Topics:  Contract Drafting, Miller Act, No Damage For Delay

Published In: Civil Remedies Updates, General Business Updates, Construction Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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