Subcontractor Sidesteps Application of No Damages for Delay Clause

Construction and Procurement Law News, Q2 2017

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A typical “limitation of liability” clause in many construction contracts is a “no damages for delay” (NDFD) clause, which provides that if, through no fault of the contractor or subcontractor, the project is delayed, the contractor or subcontractor may recover additional time, but not money. Courts in a number of states have developed exceptions to such a clause. An example of a contractor recovering damages despite the presence of a NDFD clause is described in a recent decision from the Massachusetts Appeals Court.

In Central Ceilings, Inc. v. Suffolk Constr. Co., Inc., Suffolk Construction Company, Inc. (“Suffolk”) contracted with the Massachusetts State College Building Authority (“MSCBA”) to serve as the general contractor for a residence hall erected at Westfield State College. The contract included a bonus for completing the project on time, and provided for the assessment of liquidated damages if it was not. Central Ceilings, Inc. (“Central”) submitted a bid to Suffolk to perform, among other things, installation of the exterior heavy metal gauge framing and sheathing, interior light gauge framing, drywall, and hollow metal door frames. Critical to Central’s estimate and ability to timely complete the work was the “flow” of the project, with each aspect of its work following in sequence, floor by floor, exterior to interior, building by building. Suffolk accepted Central’s bid and entered into a subcontract agreement that contained a NDFD clause:

The Subcontractor agrees that it shall have no claim for money damages or additional compensation for delay no matter how caused, but for any delay or increase in the time required for performance of this Subcontract not due to the fault of the Subcontractor, the Subcontractor shall be entitled only to an extension of time for performance of its Work.

The project coordination did not go according to the original schedule, and Central could not start on various phases at the expected times. Suffolk failed to coordinate the work of other trades; failed to establish proper control lines; failed to timely coordinate the delivery of hollow metal door frames; and failed to provide winter protection. Suffolk refused to grant any monetary relief, and also refused to grant the subcontractor any time extensions. Instead, it insisted that Central increase the onsite labor, at its cost, to meet the original project schedule.

Central brought suit claiming Suffolk’s breaches caused loss of productivity. Suffolk argued that an award of such damages was barred under the NDFD clause. The lower court disagreed and awarded Central loss of productivity damages.

The Massachusetts Appeals Court upheld the lower court’s decision, even though it recognized that a NDFD clause is enforceable under Massachusetts law. The Court held that the clause was inapplicable because, even if Central could be deemed to be seeking damages “for delay,” Suffolk had deprived Central of its only remedy under that clause by refusing to grant requested extensions of time. Furthermore, the Court found that the “no damages for delay” clause must be strictly construed and, therefore, found that Central was not seeking damages because it had been delayed, but, rather, because it had been forced to increase its workforce due to compression of the schedule occasioned by Suffolk’s breaches of its obligations. The Court noted that “Suffolk’s breaches did not affect Central’s ability to complete its work on time… but, rather, its ability to complete its work on budget.”

There are two lessons from this case. First, given this decision, owners, contractors, and subcontractors should pay close attention to the language set forth in a NDFD clause. In particular, they should be aware that in some states such clauses either will be held breached if a time extension is NOT granted OR the NDFD clause may be strictly construed to allow recovery of lost productivity damages in instances where the owner or general contractor causes delays on the project and refuses to grant requested time extensions to the affected contractors and subcontractors. Second, many times how the “claim” is initially characterized (change order, letter, email) can affect potential recovery when there is such a clause. Familiarity with your contract and involving counsel early in the dispute process will often help increase the chances of recovery.