The “No Damage for Delay” Clause: A Public Policy Issue
Vol. 75, No. 9 October 2001J. Bert Grandoff and Patricia E. DavenportFeatured Article
In the construction industry, the adage “Time is money”
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has a special meaning. A contractor who experiences delays during performance is likely to incur increased costs. In some cases, increases may be simple and straightforward. Many costs, however, are just as real though less apparent. For example, certain costs such as overhead are incurred regardless of the volume of work being performed. Salaries, rent, utilities, interest, and the like continue, while the contractor who sits idle continues to accrue losses and expenses. In addition, the contractor may lose potential profits and be unable to take advantage of other business opportunities.
So it is that when a contractor is delayed in the progress of work, he experiences damages that were reasonably within the contemplation of the parties at the time the agreement for the contract was signed.
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This article addresses the no damage for delay clause typically encountered in construction contracts and the suggestion that the clause creates a public policy issue in certain of its applications.
Risk Allocation
To a great extent, who should bear the risk of delay is left to the contracting parties to decide. Clearly, added risk affects contract costs overall. Contractors must examine all possible contingencies that may arise during contract performance and determine beforehand what action they will take if they actually do experience delays. Contractors do not perform in a vacuum with time, materials, labor, and jobs at ready disposal. Obviously, contractors must allocate resources, both for a given contract and between various contracts they may be performing or planning to perform. Thus, whenever a change, suspension, or delay occurs on a particular project, the contractor must be prepared to make adjustments. It is this “ripple effect” that brings about the delay claim that is barred by the clause in question.
A contractor should be entitled to additional compensation for delays caused by others, or for events beyond the contractor’s control. The owner’s no damage for delay clause typically takes the following form:
No claim for damages. . . other than for an extension of time shall be made or asserted against the owner for any reason whatsoever. The contractor shall not be entitled to an increase in the contract sum or payment or compensation of any kind from the owner for direct, indirect, consequential, impact or other costs, expenses or damages, including but not limited to costs of acceleration or inefficiency, arising because of delay, disruption, interference or hindrance from any cause whatsoever. . . .
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The Rationale for the Clause
Clauses such as this are obviously perceived by owners to provide protection against vexatious contractor litigation based on claims, real or fancied, charging the owner with responsibility for unreasonable delays. Owners seek to protect themselves from delays in completion time which impact the overall costthe danger of losing rents, incurring increased payments of interest on principal loans, losing business advantages, and other direct and anticipated consequences of unanticipated project completion delays. Owners have a real interest in protecting themselves from project completion delays, but to suppose for the moment that owners themselves can be excused for delays occasioned by their own behavior entirely misses the mark on the purpose for the clause.
The Florida Experience
The first case in Florida that took a look at the no damage for delay provision was
Southern Gulf Utilities, Inc. v. Boca Ciega Sanitary District,
238 So. 2d 458 (Fla. 2d DCA 1970),
cert. denied
, 240 So. 2d 813 (Fla. 1970), in which Judge Mann observed: “It speaks well for government in Florida that this is the first reported construction of a common clause that has provoked much litigation in other jurisdictions.”
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The court refused to view the no damage for delay clause as an absolute bar to recovery, and the opinion set the groundwork for future review in Florida of like clauses that owners seek to pose as an absolute bar to contractor recovery.
The cases are clear that a willful failure to provide the right-of-way will not allow the public authority (owner) to hide behind the no damages clause. (with citations)
* * *
The question on simple negligence is closer, and in formulating a workable rule we must bear in mind that the delay can result from either a knowing or an ignorant failure. No party can unreasonably rely on the no damages clause. The contractor cannot sit idly, comforted by the thought that he will either get his rights-of-way on time and earn a profit on the contract or, if delayed, obtain damages merely on account of the delay. On the other hand, the public authority cannot allow its employees to remain idle on the comfortable assumption that the no damages clause will be taken literally. We cannot precisely define the conceptual line to which the no damages clause permits the authority to neglect the duties to be assumed by it under the contract. Clearly, there is some extent to which the no-damages clause would protect it against ordinary lethargy.
* * *
We hold that this complaint states a cause of action for damages caused by the knowing delay of the public authority, which transcends mere lethargy or bureaucratic bungling.
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Although the court left unanswered the question of whether simple negligence would also state a cause of action for damages, the issue was squarely addressed in
Triple R Paving, Inc. v. BrowardCounty
, 2000 WL 1584452 (Fla. 4th DCA 2000).
The
Triple R Paving
Case
Triple R, as contractor, successfully bid on a road construction contract, the design for which was prepared by Broward County’s consulting engineer. During construction, the project was delayed when it became obvious that there was a design flaw in the horizontal sight distance. The contractor filed suit against Broward County for damages it received due to the delay in the progress of the work. The county filed a third-party complaint against its consultant engineer for indemnity. The cases were consolidated for trial.
At trial, the contractor established that the engineer’s office knew that the plans did not meet horizontal sight distance standards, and that the engineer may have been aware of the problem as early as 1992 but never advised the contractor to check the horizontal sight distance. In September 1994, during construction, it then became obvious that the sight distance problem in fact existed. As a result, the contractor claimed delay damages resulting from the inability to proceed efficiently with its work.
The engineer argued that, as a matter of law, the contractor had failed to establish sufficient proof of either fraud, bad faith, or active interference to overcome the contract prohibition against claims for damages due to delay. The court, however, found that the facts were sufficient to allow the case to go to a jury to decide the question of fraud, bad faith, or active interference.
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Effectively, the court found that the engineer’s early knowledge of the design flaw and subsequent failure to apprise the contractor constituted “willful concealment of foreseeable circumstances which impacted timely performance,” sufficient to overcome the defense of the no damage for delay clause.
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The
Triple R
decision is significant in that it follows a long list of authorities, both in Florida and elsewhere, which hold that a no damage for delay clause does not constitute an absolute bar to recovery, and that the courts will look to the specific circumstances brought about by the owner. What is most interesting about
Triple R
is that the court did not characterize the engineer’s failure to disclose as intentional. It may now be argued that simple negligence may be sufficient to defeat a no damage for delay clause. The engineer’s conduct was not, then, mere lethargy or bureaucratic bungling.
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The Implied Covenant of Good Faith
Contracting parties typically are protected not only by the contract terms that are negotiated between them, but also by the implied duty of good faith, fair dealing, and cooperation with each other. Before one can rely on exculpatory language, as protection from unnecessary litigation, that party must conduct itself in a manner that will not bring harm to the other by reason of its lack of good faith, fair dealing, and cooperation.
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It is the old equitable doctrine of “clean hands” upon which we should still rely.
A contractor may recover additional expenses for a breach of an implied covenant or condition contained within the scope of an express written contract. Virtually every contract contains implied covenants and conditions.
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It seems neither logical nor within the principles of fairness to construe the language of a typical no damage for delay clause to mean that the clause bars a claim of a contractor “for any reason whatsoever” on account of delay, while the owner exonerates itself from damages incurred by the contractor. Such an interpretation allows the owner to act at its sole discretion toward the contractor, immune from any harm it may cause. Owners, public or private, must respond to a complaint when the cause of action claims damages caused by the delay of the owner which transcends
mere lethargy or bureaucratic bungling
. In other words, the no damage for delay clause is not an absolute bar and a motion to dismiss or summary judgment should not be granted if there is evidence of owner fault. When is more than mere lethargy or bureaucratic bungling transformed into an actionable negligence case? That is a public policy issue.
The Public Policy Argument
It is the policy of the law, generally, to furnish everyone with legal remedies for any injuries received. Accordingly, a no damage for delay clause which on its face imposes a penalty on a contractor by denying a legal remedy, while excusing owner default, is contrary to public policy. Furthermore, public policy should not allow a person to avail himself of a defense while conducting himself in a manner that is inconsistent with fair dealing.
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An owner cannot, by misrepresentation of material fact or for failure to disclose a material fact, rely upon the no damage for delay clause as protection from the legal effect of such misrepresentations, whether the misrepresentation occurred negligently or intentionally. In such instances, while this conduct may be considered a breach of contract, if sufficient facts are alleged, it may be established that the owner has committed a discrete, independent tort, separate and apart from the contract, entitling the contractor to state a cause of action and recover consequential damages as a result of the negligent conduct of the owner. A term unreasonably exempting a party from the legal consequences of a misrepresentation is unenforceable on grounds of public policy. As stated in
Triple R Paving
:
Decisions of other jurisdictions lend further support to our conclusion.
See, e.g., Port Chester Electrical Construction Corporation v. HBE Corporation
, 894 F.2d 47 (2d. Cir.). . . . In
Port Chester Electrical
, the Court of Appeals premised its holding on the universally accepted proposition that a contract provision aimed at relieving a party from the consequences of his own fault are not viewed with favor by the courts. . . .
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Exceptions to the no damage for delay clause are limitless.
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Reliance on exceptions, however, begs the question.
The Need for a Public Policy Resolution
Because of the harsh result experienced by contractors when owners apply the no damage for delay clause, courts struggle to find vehicles in which contractors can defend themselves from the consequences of the no damage for delay clause, particularly when the additional impediment of “for any reason whatsoever” is imposed. A clearer, more reliable answer to the problem is needed. It should be the public policy of the State of Florida to disallow an owner to exonerate itself from liability to a contractor for damages suffered by that contractor which are the owner’s fault.
For the most part, no damage for delay clauses are akin to those circumstances when an owner seeks to insulate itself from contractor claims by exculpatory clauses such as those included in subsurface condition provisions. The no damage for delay clause and “subsurface condition” exculpatory clauses share a common thread,
i.e.
, in their application, the owner must itself be free of blame or fault before availing itself of the defense.
A typical exculpatory clause included in subsurface conditions provisions might take the following form:
Information shown on the Drawings as to the location of the existing utilities has been prepared from the most reliable data available to the Engineer. This information is not guaranteed, however, and it shall be the contractor’s responsibility to determine the location, character and depth of existing utilities.
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This clause effectively avoided owner liability to a contractor who failed to allege and prove that the representations of the existing subsurface conditions were false or misleading, or that other representations were made that were actually different, or that the owner withheld information. For this reason, the contractor could not recover.
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Another Florida case further defined the scope of an owner’s duty to disclose subsurface condition information by distinguishing between a false and misleading disclosure and a mere failure to disclose.
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The court held that the owner had a duty to furnish information which would not mislead prospective bidders and
not withhold from bidders information that it otherwise had
.
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The owner has a duty, implied or otherwise, not to mislead or dupe the contractor into a circumstance which will do the contractor harm without full disclosure, either at contract time or subsequently during the progress of the work. The suggestion here is that in the application of the no damage for delay clause, the owner obligation is substantially the same as that imposed by the courts when an owner seeks to exculpate itself from its own fault through the subsurface disclaimer provision: Any attempt to limit one’s liability for his or her own acts will not be inferred from that agreement unless that intention is expressed in clear and unequivocal terms.
Conclusion
If the rationale of
Southern Gulf Utilities
is not enough, then perhaps the no damage for delay clause, if asserted by the owner as an absolute bar to the contractor’s claim for damages, is against public policy when the owner seeks to excuse its own acts which are responsible for the delay. Under such circumstances, the clause should no more be a bar to recovery of delay damages than the exculpatory clauses in the subsurface condition claims in which the owner is responsible for accurate information and disclosure. Merely identifying exceptions to the egregious consequences of a no damages for delay clause fails to address the real issueone who seeks to excuse himself from blame on account of his own wrong cannot be protected by the law. The common good is not served by giving contractual permission to parties to be free of blame or consequences causing harm by their conduct.
1
Benjamin Franklin, on Advice to a Young Man (1778).
2
Tuttle/White Constructors v. Montgomery Elevator Co.
, 385 So. 2d 98 (Fla. 5th D.C.A. 1980).
3
Triple R Paving, Inc. v. Broward County
, 2000 WL 1584452 (Fla. 4th D.C.A. 2000).
4
Southern Gulf Utilities
, 238 So. 2d at 459.
5
Id
.
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The court ruled on
Newberry Square Development Corporation v. Southern Landmark
, 578 So. 2d 750 (Fla. 1st D.C.A. 1991), in which it was recognized that a no damage for delay clause would be vitiated by “delays resulting from a party’s fraud, concealment, or active interference of performance under the contract.”
7
Triple R Paving
, 2000 WL 1584452.
8
Southern Gulf Utilities
, 238 So. 2d 458.
9
Khosron Maleki P.A. v. M.A. Hajianpour, M.D., P.A.
, 2000 WL 275847 (Fla. 4th D.C.A. 2000).
10
For example, every contract includes an implied covenant that the parties will perform in good faith. In construction law an owner has a) an implied obligation not to do anything to hinder or obstruct performance by the other person,
Gulf American Land Corporation v. Wain
, 166 So. 2d 763, 764 (Fla. 3d D.C.A.
1964); b) an implied obligation not to knowingly delay unreasonably the performance of duties assumed under the contract,
Southern Gulf Utilities
, 238 So. 2d at 459; and c) an implied obligation to furnish information which would not mislead prospective bidders,
Jacksonville Port Authority v. Parkhill-Goddloe, Inc.
, 362 So. 2d 1009 (Fla. 1st D.C.A. 1978).
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Khosron Maleki
, 2000 WL 275847.
12
Triple R Paving
, 2000 WL 158442.
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See, e.g., Harry Pepper and Associates, Inc. v. Hardrives, Co.
, 528 So. 2d 72 (Fla. 4th D.C.A. 1988) (failure to make construction site available to commence work by an agreed date);
Langevin v. United States
, 100 Ct. Cl. 15 (1943) (failure to pass on shop drawings, make tests, or inspect within a reasonable time);
Southern Gulf Utilities, Inc. v. Boca Ciega Sanitary District
, 238 So. 458 (Fla. 2d D.C.A. 1970) (failure of sanitary district to obtain speedily rights-of-way);
Newberry Square Development Corporation v. Southern Landmark
, 578 So. 2d 750 (Fla. 1st D.C.A. 1991) (failure in providing approved plans and specifications, and in executing change orders); and
see McIntire v. Green-Tree Communities, Inc.
, 318 So. 2d 197 (Fla. 2d D.C.A. 1975) (willful concealment of foreseeable circumstances which impact timely performance).
14
Miami-Dade Water and Sewer Authority v. Inman, Inc.
, 402 So. 2d 1277 (Fla. 3d D.C.A. 1981).
15
Id
.
16
Jacksonville Port Authority v. Parkhill-Goodloe, Inc.
, 362 So. 2d 1009 (Fla. 1st D.C.A. 1978).
17
Id
J. Bert Grandoff
of Allen Dell, Frank & Trinkle, P.A., Tampa, maintains an extensive litigation practice with a concentration in the area of construction and design law, both public and private sector. He is a graduate of the University of Florida (B.A. 1958) and the Stetson University College of Law (J.D. 1965). Mr. Grandoff is a certified mediator in the Florida circuit courts and a civil mediator and arbitrator in the U.S. District Court for the Middle District.
Patricia E. Davenport
of Allen, Dell, Frank & Trinkle, P.A., Tampa, focuses on general corporate matters, construction law issues, and public agency representation.While working in the public sector, Ms. Davenport managed various administrative matters for several state agencies. She is a graduate of Tulane University (B.A. 1974) and of Stetson University College of Law (J.D. 1977).
