Contract Provisions Relating to Delay Claims and the Role of the “No-Damage for Delay” in Florida Construction Projects

by Michael K. Wilson

July, 2008

Parties to construction contracts have historically used “no damage for delay” (“NDFD”) clauses to bar recovery of additional compensation, in the event that delays on a construction project result in damages or extra costs. Generally speaking, the longer a construction project takes, the higher the costs to all involved, since profitability of a project is tied to the timeliness of the construction process, for both owners and contractors. This note provides insight to those working in Florida’s construction industry, by explaining how (and why) to include delay-related clauses which support an enforceable NDFD clause, and enable it to withstand judicial scrutiny, in their contracts. A well-drafted construction contract can also alleviate the need for an NDFD clause altogether, and may minimize the increased risk- premium that a contractor would include in its bid in response to the clause, as well as obviate litigation that finds its root in delay-related clauses.

Provisions and clauses like those discussed below should allow parties on a project to quantify, qualify and allocate the costs arising from delayed completion of the project, and may make an NDFD clause all but unnecessary. Use of the provisions discussed herein should also make identifying, negotiating and litigating delay-damage claims easier, on all parties involved.

A standard NDFD clause might read: “Contractor expressly agrees that if it is hindered or delayed from performing its work, its sole and exclusive remedy shall be a reasonable extension of time, as calculated by Owner, provided Contractor makes written request for such time. Contractor will not be entitled to claim monetary damages from the Owner for such a delay, under any circumstances.”

Similar NDFD clauses are considered advisable by their proponents because of the amount of money at issue when a project is delayed. Owners can count lost profits and rentals, debt service, and the cost of alternative space among the myriad types of their delay damages, while contractors also have many of their costs, which are related directly to time increase during a delay, including labor, material and general conditions costs, opportunity cost from performing other jobs, and overhead.

Most people within the construction industry would agree that delay-damage potential is “inherent in any construction contract,” so every party working on a project should understand how delays are addressed under the controlling agreements. That understanding works to everyone’s mutual benefit, including subcontractors, who may have recourse against a general contractor for delay damages. However, under the current legal landscape in Florida, an NDFD clause may not be an effective way to mitigate risk, and a poorly drafted NDFD clause may ultimately result in more costly litigation than if they were, instead, to use less draconian risk-shifting provisions which were the product of good-faith negotiations.

As with all exculpatory contract clauses, an NDFD clause will be enforced only when it is unambiguous, and will only be applied to the damages covered by the terms of the clause. Such exculpatory provisions are strictly construed by courts, and will be construed against the drafter of the contract, in the event of any ambiguities. For example, if the clause fails to exclude certain types of damages, such as “impacts”, “disruptions”, or costs incurred as a result of “acceleration” of the work rather than delay of the work, a court may not exclude such damages which are not expressly mentioned in the clause. Federal and state courts across the country are continually expanding the exceptions to NDFD clauses, so parties who desire to use that provision must ensure, before the enforceability of their NDFD clause is challenged, that it mirrors those judicially-created exceptions. Some may argue that a detailed NDFD clause would predispose a contractor to factor an additional risk-premium into its bid, to account for the risks it would be assuming, but any such premium should be less than a responsible bidder would include in response to a standard NDFD clause.

Well-drafted construction contracts also incorporate provisions to minimize a party’s exposure to delay damages, if an NDFD clause was to be voided. The provisions discussed below should not be carefully considered, because one of the goals for contracting parties—beyond simply packing the agreement with self-serving language — should be to seek clarity, and an equitable and cost-effective allocation of risk. Those provisions can be used in lieu of an NDFD clause, and can be drafted so as to favor either an owner or contractor, because they clarify certain details that often lead to contentious litigation, sprouting from the all-to-common situation where one party inequitably seeks to shift all risk from delays to the other party.

Excusable delays result from something outside of the control of the parties, like a “superior force” or “force majeure,” sometimes referred to as an “Act of God.” Traditional delay analysis entitle contractors to extensions of time for excusable delays. Excusable delays are further divided into those that are compensable, and those that are not. Understandably, a contractor will want to enlarge the definition of an excusable delay to equal a compensable delay, while an owner seeks a narrow definition of compensable delays. Causes of delay must be adequately identified as either excusable or compensable, rather than be left open for later debate. One example of why delays should be categorized in a construction contract can be illustrated by considering weather-related delays.

A fairly standard force majeure clause might state as follows, with respect to excusable delays: “Events which arise from or through Acts of God; strikes, lockouts, or labor difficulty; explosions, sabotage, accidents, riots, or civil commotion; act of war; fire or other casualty; legal requirements; delay caused by the other party; and causes beyond the reasonable control of a party.” By comparison, § 3.1 of AIA Document A201-1997, states that all delays “outside the Contractor’s control” are excusable and compensable to the contractor. Contractors will of resist any modification to that language, but a detailed catalogue of anticipated delay events, along with divisions between those which are compensable and those which are merely excusable, allocates initial risk and cost more effectively.

The predictability (and unpredictability) of hurricane season, and rain every summer afternoon, means that weather-related impacts are of particular concern to those of us affiliated with the construction industry in Florida. For example, is a hurricane between June 1st and November 30th really “unpredictable”? How about one which occurs from mid-August through the end of October, peak hurricane season? The unusual severity of rain, whether in length of time or in quantity, is another weather-related variable which impacts work and scheduling here, and a party involved on a project anywhere in Florida cannot fairly claim that violent rainstorms — even if they remain out of a party’s control — aren’t “frequent and foreseeable”. Specificity within a construction contract helps parties avoid litigation over otherwise relatively common occurrences, like inclement weather.

Another contractual provision that can alleviate litigation over delay damages is one which delineates the requirements for schedules, and how a contractor must employ schedules when seeking to substantiate a delay claim for additional time or money. However, in order to be of any real use, such a “schedule specification” provision should do more than simply ask a contractor to create a schedule that identifies the critical path, provide revisions and updates, and notify the owner of a pending delay. A well-drafted schedule specification pays dividends for both the owner and the contractor during the project, and in the event of a delay claim, after the project’s completion. Schedule specifications come in all sizes and formats, and are far too common to necessitate a sample provision herein, but this note would not be complete without some discussion of the clauses that a detailed schedule specification could contain, and why.

First, a schedule specification should give clear guidance to the contractor, by providing the “who, what, when and how” for schedules, which in turn gives the owner or its representative a modicum of assurance that issues impeding the project’s critical path can be timely identified and addressed. Detailed versions can designate a specific point of contact for both parties who address scheduling-related issues, which can be very helpful on a project of any magnitude, and may set forth the scheduling method, the owner’s preferred software for the schedule, and the level of activity and logic detail that the owner’s designated scheduling representative will require on every update. Good schedule specifications also clearly illuminate the “float” within the schedule, so parties understand whether an activity incorporates any float, and how it can be used or allocated, which forces a contractor to continue to devote attention and thought to its schedule on a periodic basis, and further compels regular and on-going reviews of issues impacting the timing and profitability of the project. Schedule specifications also force both owners and contractors to plan ahead, by requiring periodic updates and evaluation.

Thorough schedule specifications also require a contractor to provide a schedule update with every payment application, which serves dual purposes, by: (a) yielding a wider perspective on the progress of work along the critical path; and, (b) giving both parties the opportunity to evaluate progress issues using real-time, up-to-date information. A clause requiring a contractor to include manpower data in a schedule specification helps uncover scheduling issues and encourages collaborative planning, whereas a clause withholding progress payment until a schedule update is provided underscores the fact that the schedule is an important component of the project and the parties’ contract, which provides additional incentive for a contractor to maintain focus on its schedule. Similarly, a clause requiring written approval from the owner before a milestone may be moved reinforces that updates are planning tools, not bargaining chips. Even more detailed specifications may include descriptions of required submittals, long lead-time materials and equipment, and other factors bearing on a schedule. Good schedule specifications help the parties identify issues which may become points of contention, when a delay occurs, and addresses them within the contract. The best schedule specifications give the parties a roadmap for successful project management, and claims-management.

All of the provisions discussed herein should provide both owners and contractors with more optimism and confidence when faced with limiting, and resolving, delay-related disputes on a construction project. Parties interested in using an NDFD clause must be cognizant of the numerous and growing list of exceptions to the enforceability of those clauses, and should consider using other provisions instead. Moreover, since some delay is virtually certain on almost every project, prudence dictates that the parties should limit or control the various elements inherent in delay claims, which themselves often lead to litigation, by striving for clarity throughout that their contract. That collaborative effort and focus, along with use of provisions similar to those provided above, should help contracting parties better resolve their delay-related disputes without having to resort to costly, adversarial proceedings.

Michael K. Wilson is a Partner in the Orlando office of Broad and Cassel. He is the chairman of the Firm’s Construction Law and Litigation Practice Group and a member of the Commercial Litigation Practice Group. He can be reached by calling (407) 839-4200 or by email at mkwilson@broadandcassel.com. Wendell Bruce Hays is an Associate in the Orlando office of Broad and Cassel. He is a member of the Construction Law and Litigation, Commercial Litigation, and Appellate practice groups. He can be reached by calling (407) 839-4200 or by email at whays@broadandcassel.com.