October 2002
By ALEXANDER A. MIUCCIO, CIC Legal Counsel
Delay claims are among the most frequently litigated issues arising from construction projects. It seems almost inevitable that projects will incur some form of delay. Owners frequently attempt to protect themselves from contractors' claims for additional compensation resulting from delays by including a "no-damage-for-delay" clause in the construction contract.
A no-damage-for-delay clause is generally enforceable, and the courts, relying upon such clauses, will often bar recovery for delay damages. The courts, however, have carved out certain exceptions to the enforceability of such clauses. Delay damages may be recovered, despite a no-damage-for-delay clause, for:
¥ Delays caused by the owner's bad faith, or its wilful, malicious or grossly negligent conduct;
¥ Uncontemplated delays;
¥ Delays so unreasonable that they constitute an intentional abandonment of the contract by the owner; and,
¥ Delays resulting from the owner's breach of a fundamental obligation of the contract.
In the recent case of T.J.D. Construction Co., Inc. v. The City of New York, the appellate court rejected the contractor's delay claim and affirmed a dismissal of the complaint.
Background
T.J.D. Construction Co., Inc., was lower bidder and was awarded a contract by the City of New York in the sum of $1,473,000 for the modernization and rehabilitation of the Greenpoint Incinerator Plant in Brooklyn, NY. The project was divided into two phases, each dealing with a pair of incinerators sharing a common stack, so that at no time would both pairs of incinerators be shut down. The contractor was advised that the commencement date for all work was Oct. 17, 1988. The contract provided for completion of the work in 360 days. The construction manager's schedule indicated a completion date of Oct. 20, 1989.
The contract contained a no-damage-for delay clause, pursuant to which the contractor agreed "to make no claim for damages for delay in the performance of this Contract" and waived any claims against the city for delays caused by other contractors on the project.
Phase I of the project was completed without delay in February 1989. However, the commencement of Phase II was delayed. A job action by union workers of another contractor on the project continued from April until September 1989. Performance and compliance testing of the Phase I equipment ran from February to May 1990 until the Phase I incinerators were determined to be fully operational and satisfactory to the city.
Phase II did not commence until April 1990, rather than in August 1989 as shown in the construction manager's schedule. The contractor incurred damages of $495,000 by reason of the delay in the commencement of the Phase II project and commenced an action to recover those damages. The city moved for summary judgment to dismiss the complaint.
Arguments
The contractor argued that the contract called for 360 continuous days after commencement of the work, relying on the construction manager's schedule. The city argued that under the contract, 180 days was separately allocated for each of the two phases, and that commencement of work on Phase II was not necessarily contiguous with the completion of Phase I. The city relied on provisions of the contract for testing work on Phase I before commencing Phase II so that there would always be part of the plant in operation. The city also pointed to language in the contract indicating that 180 consecutive days was provided for each phase and that "[c]ommencement of work...is not necessarily contiguous with the completion of construction activities for the other pair of units." The contract also provided that the work had to be tested and successfully operated for at least seven days before the granting of substantial completion.
The contractor further argued that, in any event, a 25-week delay between the two phases was not contemplated, and was unreasonable. The contractor also argued that the delay was not caused by the union's job action, but rather by the city's wilful and wrongful letting of the contracts without proper supervision and scheduling, with inadequate specifications, and with knowledge at the outset that there was a problem with the design and scheduling of the project. The contractor also claimed that the city delayed the commencement of Phase II by revising its testing procedures for the Phase I equipment.
The city relied on the no-damage-for-delay clause. It argued that to the extent there was any delay, it was caused by the job action by the union workers of another contractor on the project, that such delays could reasonably be contemplated and that there was no evidence of bad faith, gross negligence, abandonment or breach of a fundamental obligation of the contract by the city.
Lower Court Decision
The lower court found that the contract called for two separate 180 periods and not one 360 consecutive day period. The court also found that the job action was at least partially the cause of the delay. The court also held that even assuming the city's conduct did delay the commencement of Phase II by revising its testing procedures, such delay was not compensable.
According to the court, "delays due to purportedly defective plans...have been held to be the type of delay which is contemplated by the parties to a municipal contract."
The lower court granted the city's motion and dismissed the complaint. The contractor appealed.
Appellate Decision
The appellate court affirmed the lower court's dismissal of the complaint. The court stated that the contractor's claim that testing and correction of equipment design defects was not contemplated was refuted by the contract provisions calling for the work to be done in two stages so that a portion of the incinerator plant would always be in operation. The court found no evidence of bad faith or gross negligence and held that the seven-month delay was not so unreasonable as to connote abandonment of the contract. According to the court, "the delay connoted an active and good-faith attempt...to rectify defects in the equipment used in the first stage of the upgrade that were first revealed by tests performed in the middle of the contract."
The court concluded that, at worst, the poor planning and scheduling complained by the contractor amounted to no more than inept administration.
Conclusion
In this case, the contractor was unable to demonstrate any of the exceptions to the enforceability of the no-damage-for-delay clause. There was no bad faith, willfulness or gross negligence on the part of the city. The delays were not of the type that could not have been anticipated at the time of contract or so unreasonable as to constitute abandonment of the contract.
The city did not breach any fundamental obligations of the contract. In the absence of these exceptions, the courts enforced the no-damage-for-delay clause set forth in the contract and dismissed the contractor's claim for delay damages.
About the author: Mr. Miuccio is a partner in the New York City-based law firm Altieri, Kushner, & Miuccio P.C. and legal counsel to the Construction Industry Council of Westchester and the Hudson Valley Inc.