The Construction Advantage, Understanding “No Damage for Delay Clauses” in Construction Contracts
Understanding “No Damage for Delay Clauses” in Construction Contracts
Unforeseen delays top the list of risks that many construction players want to eliminate through contracts. Typically, this risk is managed by including a “no damage for delay” (NDD) clause. NDD clauses generally provide that all forms of delay are non-compensable and that the sole remedy available to the contractor is a schedule extension. This limitation applies even under circumstances where the owner or its consultants and separate contractors are at fault for the delay.
Although a handful of states have enacted legislation invalidating NDD clauses in public contracts, most courts have ruled that a clear and unambiguous NDD clause is enforceable, absent proof of owner conduct tantamount to fraud or bad faith. However, courts will often construe an NDD clause strictly against the drafter. As a result, NDD clauses lacking in clarity, or conflicting with other contract provisions concerning delay compensation, may not be enforced.
In order to discourage abuse of the protections granted by an NDD clause, courts have tried to level the playing field by adopting a number of conduct-based exceptions to enforcement. An NDD clause will not generally be enforced where the party asserting it has engaged in:
- Active or intentional interference with the progress of the work,
- Willful misconduct,
- Grossly negligent conduct or
- Conduct causing delays so unreasonable as to constitute an abandonment of the contract (a cardinal change)
The Supreme Court of ME upheld an NDD clause in a 1962 case known as Yonkers Contracting v. ME Turnpike Authority but has provided no guidance on exceptions. New Hampshire and Vermont have not directly addressed the validity of NDD clauses. Massachusetts, Connecticut and Rhode Island have followed the majority, determining that NDD clauses are enforceable, subject to exceptions for arbitrary or bad faith conduct similar to that described above.
Given the difficulties in proving fraud and willful behavior, an outrageous level of misconduct is often necessary in order to overcome a well drafted NDD clause. As a result, contractors should consider the impact of these clauses during the bid stage and determine whether the risk is worthwhile.
Whether you are in the position of an owner, contractor or lower tier subcontractor, it is important to understand the impact of NDD clauses, the conditions under which they are enforceable, and how the rules vary by state. If you have questions, contact our Construction Practice Group for answers.