A common clause in many New York construction contracts is a “no-damage-for-delay” exculpatory provision, providing, in sum, that delay damages are not compensable and that if you are delayed, then you are only entitled to a time extension (at most). Of course, these terms are sometimes offset with certain compensable time impact terms, but their thrust is nonetheless important. Although circumstances vary, and the specific terms of a given contract are always of utmost importance, there are factors you need to consider, whether you are a general contractor or subcontractor.
Some states, like New Jersey, given its strong stance on the implied covenant of good faith and fair dealing, take a more equitable view of no-damage-for-delay provisions and even provide limitations as to their enforcement in the public and private arenas. This, however, is not the case in New York, which has a much stricter approach. As recently as last year, New York courts enforced the literal terms of broad no-damage-for-delay provisions in construction contracts. As a result, pursuant to New York law, delay damage claims can be dismissed even prior to discovery taking place. In other words, courts can dispose of delay damage claims prior to the parties’ exchange of documents or taking of depositions, despite the fact that these claims can be complex and valuable.
New York’s strict approach dates back to the 1980s, with the landmark case of Corinno Civetta Constr. Corp. v. City of New York. The highest state court in New York—the New York Court of Appeals—held that broad no-damage-for-delay provisions are enforceable (as they are not against public policy) and should be enforced according to their terms. This set the stage for several decades of strict enforcement of these exculpatory provisions.
Over time, New York courts have gone further in reaffirming enforcement of these provisions by finding larger categories of damages to constitute “delay damage.” Courts have found delay damages to include acceleration costs, increased labor costs, extended general conditions, and even delayed access (with some courts holding even several months delayed access would be captured by the exculpatory provision). Even delays caused by design changes have been found to be a type of “delay damage” in certain circumstances.
This does not mean that all hope is lost. The Corinno Court and subsequent holdings recognize that there are four exceptions to enforcing broad no-damages-for-delay provisions, albeit while simultaneously holding that such exceptions are “narrowly” construed. These exceptions include:
- Delays that were uncontemplated
- Delays caused by a breach of a fundamental obligation under the contract
- Delays that are so unreasonable they amount to the abandonment of the contract
- Delays due to bad faith, fraud, or willful and/or grossly negligent conduct
The exceptions for the abandonment of the contract and for bad faith, fraud, or gross negligence are relatively self-explanatory, though these exceptions are not as common and therefore not applied often by courts.
The more commonly asserted exceptions are due to uncontemplated delays or breach of fundamental contractual obligations. Breach of a fundamental obligation is most commonly interpreted as a breach of a material and explicit provision of the contract that goes to the heart of the agreement. This can be something like a complete failure to provide a schedule (if a schedule was required pursuant to contract). However, application by the courts is not uniform, and there is limited guidance available.
The most commonly asserted exception is for uncontemplated delays. While this may seem like a “catch-all,” it has been interpreted narrowly, as well. Courts have interpreted the exception to mean that if a “type” of delay damage is contemplated by the subject contract, then the exception will not apply. Courts will look for either general categories and/or specific items being “contemplated” (i.e., discussed) in the contract such that a (sub)contractor could reasonably expect it to be a source of delay. When a court makes this assessment, it may search the agreement at varying levels to determine what was contemplated. This can be subjective depending on the court and even the judge, thus leading to inconsistent application where contractors ought to err on the side of prudence.
Notably, there is also an exception to the exception. Courts have used the umbrella concept of “poor planning and inept administration” as a “catch all to the catch all.” In other words, the courts find certain delays as being so “routine” and/or “garden variety” that they are considered to be impliedly “contemplated” by the contract due to their common nature. This is true even where the subject contract does not discuss the specific source or general category of a source of delay damage. Thus, even if uncontemplated in the contract at issue, the no-damage-for-delay provision may still be enforced if it is a “typical” or “expectable” source of delay.
Ideally, over time courts will begin to realize the need for pragmatic parameters in enforcing these provisions. This is because, while “contingencies” to a modest degree can be built into contracts, such strict claim preclusion reasonably should not be considered the “parties’ intent.” Yet, at present, the courts in New York noticeably and materially tend to stricter enforcement. Thus, contractors and subcontractors in New York should try to mitigate the risks of no-delay-damage provision enforcement when delay damages (in the broadest sense) are first recognized on a given project and should work to preserve these claims as best as possible throughout the duration of their scope..
In sum, no-damage-for-delay provisions may be common in construction contracts, but they nonetheless present palpable risks. Accordingly, contractors and subcontractors need to remain cognizant of this, balance their risks appropriately, and be sure to understand any applicable notice and/or time impact provisions that could otherwise allow for a delay claim to stand and potentially mitigate these concerns.