Although claims for delay damages in construction litigation are fairly common, they are notoriously difficult and expensive to prosecute or defend. They almost always require the retention of scheduling, and potentially accounting, experts to opine on the extent (if at all) to which delays occurred, the cause of the delays, and the effect of the delays on various categories of financial performance. Because delays often escape precise proof, experts employ various methods for approximating them (e.g., the “measured mile,” “as-built,” “windows analysis,” etc.), invariably embroiling the litigation in a costly and unpredictable battle of experts.
Against that backdrop, it comes as no surprise that “no-damages-for-delay” provisions are a common fixture in modern construction contracts. The goal of such provisions is to prevent claims for delay damages from ever being prosecuted (and the attendant costs from being incurred) by making clear that the only remedy available to a party aggrieved by delay is an extension of time. See Gherardi v. Trenton Bd. of Educ., 53 N.J. Super. 349, 360-61 (App. Div. 1958) (finding no-damages-for-delay clause was a complete bar to plaintiff’s claim where the contract anticipated the type of delays at issue and specified that an extension of time was the sole remedy). Thus, a properly drafted, enforceable, no-damages-for-delay provision can cause the dismissal of delay claims prior to trial, or deter litigation of such claims altogether. See, e.g., Perini Corp. v. Greate Bay Hotel & Casino, 129 N.J. 479, 515 (1992) (advising Perini that had it bargained for a no-damages-for-delay clause it could have avoided leaving “the resolution … to third-party arbitrators.”).
Of course, the fact that a contract includes a no-damages-for-delay provision does not mean it will be enforced. This article will discuss certain principles of contract interpretation that may limit or undermine no-damages-for-delay provisions, as well as conduct that may nullify even the most well-drafted clauses, under New Jersey law. Finally, the article will suggest practice points for crafting clauses that can avoid these pitfalls.
Principles of Contract Interpretation that May Undermine such Provisions
Normal rules of contract interpretation apply to no-damages-for-delay provisions. Broadway Maint. Corp. v. Rutgers, 90 N.J. 253, 270 (1982) (noting that exculpatory clauses “ha[ve] to be interpreted and applied in accordance with recognized principles of contract law.”). Thus, inartful drafting or careless placement of such provisions within the contract may undermine or nullify the protections the clauses are meant to provide. See, e.g., Buckley & Co. v. State of New Jersey, 140 N.J. Super. 289 (Law Div. 1975) (“[A] no-damage provision ought not be construed as exculpating a contractee from that liability unless the intention to do so is clear.”); cf. Franklin Contracting Co. v. State of New Jersey, 144 N.J. Super. 402, 406 (App. Div. 1976) (“‘[N]o damage’ clauses, where applicable, have been upheld as binding upon the contractor where the language used is as clear and unambiguous as could fairly have been employed for the purpose of the very contingency which arose.”). In addition, no-damages-for-delay clauses are not exempt from the maxim that ambiguities in contract provisions will be strictly construed against their drafter. See Driscoll Constr. Co. v. State, Dep’t of Transp., 371 N.J. Super. 304, 318 (App. Div. 2004) (“[W]here an ambiguity exists in the contract allowing at least two reasonable alternative interpretations, the contract is to be strictly construed against the drafter …. Public authorities, who choose contract terms when they invite contractors to bid on construction projects, are not exempt from this doctrine.”).
The case of Wash Twp. Bd. of Educ. v. Sal Elec. 2011 N.J. Super. Unpub. LEXIS 1134 (N.J. App. Div. May 4, 2011) provides an instructive example of the extent to which such principles may nullify even seemingly straightforward no-damages for delay provisions. In that case, prime electrical contractor SEI sought delay damages from owner Washington Township Board of Education. Failure to secure a building permit resulted in an initial eight-week delay that caused a cascade of other project delays that were compounded by weather issues. SEI was awarded delay damages in arbitration. On appeal, the Board argued that the award was prohibited by a no-damages-for-delay clause that read, in pertinent part:
If any Prime Contractor is delayed in the progress of the Work at any time by the Owner, Architect, Construction Manager or other Prime Contractor, due to the incorporation of any major changes to the Work, the relative Prime Contractor shall not assert any claim regarding the same to any of these parties and the relative Prime Contractor’s sole remedy shall be limited to an extension of time, without cost.
Id. at *5-6, 13. The court disagreed, finding that the no-damages-for-delay clause, per its “plain and ordinary meaning,” applied only to delays resulting from “major changes to the work.” Because the delays for which SEI was awarded damages were not the result of additions or changes to its scope of work, the no-damages-for-delay provision did not apply to them. Id. at *21. In addition, the court noted that, to the extent the phrase “major changes to the work” could be considered ambiguous, that ambiguity must be construed against the owner as drafter. Id. at *21-22.
Conduct that May Nullify the Provision
Although the general rule in New Jersey is that no-damages-for-delay provisions are valid and enforceable, Capital Safety v. State, Div. of Bldgs. & Constr., 369 N.J. Super. 295, 304 (App. Div. 2004), there are certain categories of conduct that will nullify even the most clear and robust of such provisions. New Jersey courts have long recognized that no-damages-for-delay clauses will not bar recovery of delay damages when: (i) the delay was of a type not contemplated by the parties; (ii) the delay amounts to abandonment of the project or contract; or (iii) the delay was caused by active interference or bad faith of the party seeking enforcement. Kaplen & Son, Ltd. v. Passaic Hous. Auth., 42 N.J. Super. 230, 234-35 (App. Div. 1956); see also Broadway Maint. Corp., 90 N.J. at 270 (“[F]actors such as the good faith of the party seeking enforcement, abandonment of the contract, unconscionability and other contract defenses may bear on the enforceability of the exculpatory agreement.”); Capital Safety, 369 N.J. Super. at 304 (no-damages-for-delay provisions “should be enforced unless there is a showing of unconscionability or bad faith”). New Jersey courts have explained that a party will be precluded from enjoying the protection of a no-damages-for-delay clause if it engages in conduct beyond “a simple mistake, error in judgment, lack of total effort, or lack of complete diligence” and “commit[s] some affirmative, willful act, in bad faith which unreasonably interferes with the contractor’s compliance with the contract terms.” Dobson v. State, 218 N.J. Super. 123, 128-29 (App. Div. 1987) (quotations and citations omitted).
Thus, a party to a construction contract who causes delay by failing to conduct itself in good faith or by not making sufficient effort to satisfy its obligations under the parties’ agreement may, by virtue of that conduct, nullify the protections against delay damages for which it bargained. For example, in Franklin Contracting Co., 144 N.J. Super. at 408, the Appellate Division reversed the trial court’s finding that a no-damages-for-delay clause barred plaintiff’s claims. There, the delays at issue were incurred after the State made a pre-bid misrepresentation that the contractor would have a right-of-way to the project site. The court reasoned that because the State affirmatively represented that the contractor would have lawful access to the site, “it can hardly be claimed that [the no damages] clause was intended to render the State immune from liability or that the parties contemplated delay because the State did not have a valid right-of-way.” Id. at 410.
Notably, public contracts may also contain no-damages-for-delay provisions, but the extent to which they can limit delay damages is specifically governed by statute. Specifically, such clauses cannot exculpate a government entity for delays caused by its “negligence, bad faith, active interference or other tortious conduct.” See N.J.S.A. §2A:58B-3 (New Jersey Public Contracts); see also N.J.S.A. §18A:18A-41 (Public Schools Contracts); N.J.S.A. §40A:11-19 (Local Public Contracts).
Suggested Practice Points
It is important to account for the foregoing New Jersey law when drafting no-damages-for-delay provisions. The following practices can help to avoid potentially thorny issues when trying to enforce these clauses:
• Ensure that the wording of the no-damages-for-delay provision is clear and unambiguous. Avoid phrases that might be interpreted to restrict application of the clause to specific causes of delay. • Make the intended effect of the provision as clear and unqualified as possible. It should clearly state that the parties acknowledge and accept that as a result of this provision, the only remedy available to them in the event of any type of delay is an extension of time. • Draft the no-damages-for-delay provision as a stand-alone provision with its own heading in the agreement. If the provision is buried in a paragraph with other clauses, courts may look to the language and purpose of those other clauses in interpreting the no-damages-for-delay provision. • Counsel your client to conduct itself in good faith and in accordance with the terms set forth in the parties’ agreement. Make clear that a failure to do so subjects the client to delay damages irrespective of even the strongest no-damages-for-delay provision. • For public contracts, be mindful of statutes that may apply to limit the scope and strength of no-damages-for-delay provisions.
While litigation over the enforceability of no-damages-for-delay provisions may be unavoidable, following the above suggestions may help deter litigation, or help ensure a pre-trial resolution of the dispute in your client’s favor.
Samuel I. Portnoy is a director, and Kate E. Janukowicz is an associate, in the Commercial & Criminal Litigation Department at Gibbons P.C. in Newark.