We start our series of articles on multi-state variations in the treatment of contract risk with one of the most common sources of legal disputes on construction projects: scheduling, time impacts, and disruptions. Schedule-related disputes are usually fact-intensive, often require scheduling consultants, are time consuming and — if they go to court or arbitration — difficult to resolve prior to final hearing and trial. The current trend of courts to refuse to fully enforce one of the common clauses that upstream parties (e.g., owners and general contractors) use to limit risk, the no damages for delay (NDFD) clause, has made these disputes even more expensive and time consuming.
NDFD clauses typically provide that downstream contractors or designers may not recover losses (such as extended general conditions and extended overhead costs) caused by delays. Similar clauses sometimes expressly preclude losses (such as inefficiencies and overtime) caused by out-of-sequence work, acceleration, and cumulative impacts due to excessive project and design changes. These clauses often limit remedies to extensions of time. They also often require compliance with short claim submission deadlines and content requirements (such as critical path analyses).
Depending on applicable state and federal law, an NDFD clause may not be enforceable. Courts and legislatures have carved out (and continue to carve out) exceptions to the enforceability of such clauses. Exceptions can be quite broadly or vaguely described (“unforseeable circumstances,” “active interference,” “unreasonable duration of delay,” and “bad faith,” to name a few). Some jurisdictions recognize some of these (or other) exceptions but not others. Some jurisdictions differentiate between public projects and private projects. Some jurisdictions even use a combination of the above in determining the enforceability of an NDFD clause. Some jurisdictions are considering these issues in areas other than pure delay damages.
Many of these issues require attention before disputes arise and enforcement in litigation or arbitration. They often may be addressed much earlier, at the contract drafting and negotiation stage and the claims submission stage. Careful drafting of contracts and claim submissions may help avoid the consequences of some of these clauses and legal trends, or at least force an arm’s length and thoughtful negotiation that tailors risk allocation to actual project. Timely submission and properly crafted claims submissions may also help avoid technical defenses to otherwise valid claims.