A Pennsylvania appellate court recently refused to enforce a “no damages for delay” clause and upheld an award of delay damages against a school district where the district actively interfered with a general contractor’s work.

In John Spearly Construction, Inc. v. Penns Valley School District, a school district (“District”) entered into a contract with an architect and various contractors for the design and construction of a biomass boiler system.  John Spearly Construction was responsible for constructing a building to house the boiler plant.  Another contractor, Allied Mechanical & Electrical, was responsible for supplying the boiler itself.

Spearly filed a lawsuit after delays caused the substantial completion to be nearly a year late.  Despite a “no damages for delay” clause in the contract, the trial court ruled for Spearly, and held that the “no damages for delay” clause was unenforceable because the District actively interfered with Spearly’s work and caused the delay.  The Pennsylvania Commonwealth Court recently affirmed the judgment.

Although Pennsylvania courts have ruled that “no damages for delay” clauses may be enforceable, such clauses may not be asserted as a defense “when a public entity commits active interference.”  A public entity, such as the District, is deemed to actively interfere with a contractor’s work when it engages in “positive action not reasonably anticipated under the contract, or failed to act as needed for a project to progress.”

The court found that the District interfered with Spearly’s work by failing to address Allied’s failure to adhere to the schedule.  The court also held the District responsible for the failure of the District’s architect to coordinate the schedule of all prime contractors, provide adequate oversight of the contractors’ progress, and make timely decisions on design issues.

Spearly demonstrates that even where a contract includes a favorable “no damages for delay” provision, an owner can be held responsible for delay damages if it – or contractors for which it is responsible – actively interferes with another contractor’s work.  Following Spearly, owners should: (1) be proactive to ensure coordination of all contractors’ work and avoid delays; and (2) negotiate contract language that would expressly hold contractors responsible for delays they may cause to other contractors’ work.