Kenneth A. Cushing | Pepper Hamilton LLP | May 4, 2016
Time is money in construction, and project delays can cause contractors to incur substantial additional costs. To avoid responsibility for paying these costs, project owners often include a no-damage-for-delay (NDFD) clause in the contract, where legally permitted. An example of a typical NDFD clause reads as follows:
The Contractor agrees to make no claim for damages for delay in the performance of this contract occasioned by any act or omission to act of the [Owner] or any of its representatives, and agrees that any such claim shall be fully compensated for by an extension of time to complete performance of the work as provided herein.
An NDFD clause may bar a contractor from recovering delay damages. But, in most states, the enforceability of NDFD clauses is also subject to exceptions. As shown in the clause quoted above, NDFD clauses often provide that the exclusive remedy for delay is an extension of time. The issue is whether an NDFD clause, which provides a time extension as an exclusive remedy, also bars claims for acceleration. As explained below, there are several approaches to this issue.
First, a word on acceleration. A contractor accelerates when, because of delay, it is forced to work at a pace faster than originally contemplated by the contract to complete work on time or to minimize delay. In general, a contractor may recover acceleration damages where (1) delays are excusable, (2) the contractor was ordered to accelerate and (3) the contractor did so and sustained extra costs. An owner’s acceleration order may be express or constructive. For a constructive acceleration claim, a contractor must also prove that (1) the owner knew of the delay, (2) the owner made a statement or act that could be construed as an acceleration order and (3) the contractor gave notice that the order was a constructive change.
Acceleration and delay are connected because the fundamental cause of the need to accelerate performance usually is a delay. This creates tension between acceleration claims and NDFD clauses and raises the question of whether acceleration claims are barred by NDFD clauses.
Contractors have taken several potential approaches to this problem. One approach is to make a simple language argument that “acceleration” (going fast) is the opposite of “delay” (going slow). From this, contractors have argued that, because the NDFD clause only bars delay damages, it does not bar acceleration damages. This approach may prove to be a dead end. Several courts that have considered the issue have concluded that acceleration damages are merely a form of delay damages and are barred by the NDFD clause. One court stated that acceleration and delay are “two sides of the same coin” and held that the acceleration claim was barred by the NDFD clause.
A second approach is to try to prove that the underlying delay fits into one of the recognized exceptions to the enforceability of an NDFD clause. For example, in New York, an NDFD clause can be avoided where delays (1) are caused by the owner’s bad faith or grossly negligent conduct, (2) are uncontemplated, (3) are so unreasonable that they constitute the owner’s intentional abandonment of the contract or (4) are a result of the owner’s breach of a fundamental contractual obligation. Other states have adopted similar exceptions. Therefore, to recover on an acceleration claim, a contractor might have to prove that the project delays resulting in the acceleration fit into one of a state’s recognized exceptions that avoid the NDFD clause. Some jurisdictions appear to require this approach. But, this approach can be risky because the contractor might fail to prove an exception and because it limits the basis of the acceleration claim (i.e., instead of merely requiring proof of excusable delay, it requires proof of a fundamental or unreasonable delay).
A third approach is grounded in the contract language itself. A contractor can argue that acceleration claims are not barred by the NDFD clause because the owner refused to provide the time extension that the NDFD clause itself says is the sole remedy for delay. Essentially, the contractor’s argument is that it only agreed to limit its rights under the NDFD clause in exchange for the promised time-extension remedy. Under this approach, if the owner wrongfully refuses to grant the time-extension remedy expressly provided by the NDFD clause, the acceleration claim might be allowed despite the clause, provided the contractor can prove it is entitled to a time extension. As one court stated, to allow the owner to refuse the time extension provided in the NDFD clause would allow an owner to intentionally injure a contractor without consequences. One advantage of this approach may be that it permits the contractor to avoid the need to prove exceptions to the NDFD clause. This approach has not been adopted in many jurisdictions, however, and is mostly found in unpublished opinions.
In summary…