Apportioning the Risk of Delay in Construction Projects: A Proposed Alternative to the Inadequate "No Damages for Delay" Clause

Article excerpt

INTRODUCTION

Construction is a risky, competitive, and litigious business. (1) Each new construction venture may bring together hundreds of parties--including owners, architects, engineers of all varieties, general contractors, subcontractors and suppliers--many of whom have never dealt with each other on previous projects. The design of most projects is a new creation, often incomplete when construction begins. Every construction site is unique. Labor conditions, weather, material availability, and any number of other factors are difficult to predict. Knowing little of what the future holds, the parties nonetheless proceed to estimate how much the project will cost, estimate how long it will take, contractually bind themselves accordingly, and hope for the best.

Among the most obvious and common risks in the construction industry is the risk of delay. As one court has noted, "except in the middle of a battlefield, nowhere must men coordinate the movement of other men and all materials in the midst of such chaos and with such limited certainty of present facts and future occurrences as in a huge construction project...." (2) Even the most successful projects--in the sense that all contracting parties walk away financially satisfied--are rarely completed precisely according to the original construction schedule. Despite the fact that delays are commonplace, the reality of a competitive bidding process requires that most contractors carry little or no contingency for delay. (3) Delays can have devastating economic effects on both owners and contractors. In fact, even when other problems occur on a project, the associated delay is usually the most expensive consequence. (4)

Not surprisingly, parties have sought means of shifting the risk of construction delay away from themselves. One mechanism used towards this end is the common contractual provision known as a "no damages for delay" clause. Imposed on general contractors by owners or on subcontractors by general contractors, a no damages for delay clause essentially states that the contractor will not be entitled to monetary damages in the event of a delay. These clauses are often used in connection with a statement that a time extension is the sole remedy for the contractor's delay. (5) Such a clause may be worded as follows:

   In the event that Subcontractor is obstructed or delayed in its
   performance of its work by Contractor or Owner, Subcontractor
   will be entitled to a reasonable extension of time. It is agreed
   that the extension of time will be Subcontractor's sole and
   exclusive remedy for such obstruction or delay, and that in no
   event will the Subcontractor be entitled to recover damages from
   Contractor or Owner for any such obstruction or delay. (6)

No damages for delay clauses can vary widely in scope. At the broadest end of the spectrum, some construction contracts use language that damages are unavailable for delays resulting from "any cause whatsoever." (7) The example quoted above represents a middle ground in which the clause covers delays caused by the contractor or owner. An even narrower clause may apply only to force majeure events. (8)

No damages for delay clauses in construction contracts have always been very controversial. They often lead to inequitable outcomes and harsh results for contractors delayed through no fault of their own. On the other hand, there are numerous practical and theoretical arguments in favor of their enforcement, not the least of which is the foundational principle of freedom of contract. (9) Because these clauses are so exculpatory in nature, courts scrutinize them carefully. (10) Although no damages for delay clauses are not invalid per se in most jurisdictions, close judicial attention has led to the development of numerous well recognized exceptions to their enforcement. (11) One commentator has analogized the evolution of the law in this area to a tennis match, in which no stable and suitable end is in sight. …