The "no damage for delay" clause: a public policy issue.

• Author: Grandoff, J. Bert
• Position: Florida

In the construction industry, the adage "Time is money"(1) 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.(2) 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 ....(3)

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 cost--the 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."(4)

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.

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