New York Courts Continue to Uphold Enforceability of No Damages for Delay Clauses

Construction and Procurement Law News, Q2 2019

Firm Alert

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A New York trial court recently upheld the enforceability of a no-damages-for-delay clause in a contract between a general contractor and its subcontractor. In Hailey Insulation Corp., v. WDF, Inc., the subcontractor (“Hailey”) filed a complaint against the general contractor (“WDF”), alleging that it was due $1.3 million under the subcontract along with additional delay damages. WDF moved to dismiss the lawsuit on the basis of a contractual no-damages-for-delay clause, which the court granted.

In granting WDF’s motion to dismiss Hailey’s claim for delay damages, the court recognized that while no-damages-for-delay provisions are generally enforceable, there are exceptions to the enforceability of such provisions. However, the court ultimately found that Hailey failed to properly allege any such exception applied.

Specifically, the court outlined the following exceptions in which damages may be recovered, despite the inclusion of a no-damages-for-delay clause in the controlling contract:

(1) delays caused by the contractee's bad faith or its willful, malicious, or grossly negligent conduct, (2) uncontemplated delays, (3) delays so unreasonable that they constitute an intentional abandonment of the contract by the contractee, and (4) delays resulting from the contractee's breach of a fundamental obligation of the contract.

No-damages-for-delay clauses are enforceable in many jurisdictions. However, courts in some of those jurisdictions have carved out exceptions to the enforceability of such clauses, and several states have statutory provisions limiting the enforceability of no-damages-for-delay clauses or rendering them void. For example, California, Colorado, Louisiana, Minnesota, Missouri, North Carolina, New Jersey, Oregon, and Virginia, among others, have passed legislation limiting or rendering “no damage for delay” clauses unenforceable in public contracts. Arizona and Massachusetts mandate a contractual provision permitting damages for delay in contracts between public owners and contractors. Ohio and Washington have statutory provisions limiting the clauses or rendering them unenforceable in both public and private contracts. And, Kentucky prohibits such clauses in both public and private contracts, but allows limitations on the types of damages recovered.

Contractors and owners should, therefore, become familiar with the applicable common law and statutory schemes related to no-damages-for-delay clauses before incorporating them in their contracts.