Executive Summary: A presentation on March 8, 2017at the 98th Annual AGC Convention reviewed ten (10) “killer clauses” in contracts. The “No Damages for Delay Clause” was #4; it is discussed, and proposed language to neutralize the clause is presented.
What’s at stake. A presentation prepared by Brian Perlberg (Senior Counsel, Construction Law, AGC of America), Michael Zisa (Partner, Peckar & Abramson, Washington, D.C.), and Bruce Ficken (Partner and Chair Emeritus, Pepper Hamilton LLP) presented the following actual language from a contract: Time Extension for Delay – An extension of time under the Contract shall be Contractor’s sole and exclusive remedy for any delay to the Work or impacts
Time Extension for Delay – An extension of time under the Contract shall be Contractor’s sole and exclusive remedy for any delay to the Work or impacts to the progress of the Work, even if such delays were unforeseeable or due in whole part to the actions of Owner.
This language is severely unbalanced in favor of the drafting party.
The obvious potential additional costs to the contractor include:
- Project overhead – project office staff and equipment on the project longer than anticipated at bid time
- Corporate overhead – the project’s share of office staff and facilities costs not being supported by project-generated income
The less obvious costs include:
- Inability to bid bonded work (your bonding program is put on hold until the project suspension is lifted)
- Stalled or reversed working capital – working capital is equal to current assets less current liabilities. Because you are not generating any current assets (ie, progress payments), but you are generating current liabilities (ie, invoices for the construction equipment rental, port-a-potty rentals, payroll, etc), it follows that your working capital is going backward! Cash is king and right now cash is going in the wrong direction!
What was most concerning about the presentation was that clauses of this nature are generally enforceable absent active interference.
The presenters went on to suggest the following language to neutralize the clause:
Time Extension for Delay – For overall Project delay totaling 30 days or less, an extension of time under the Contract shall be Contractor’s sole and exclusive remedy for any delay to the Work or impacts to the progress of the Work, even if such delays were unforeseeable or due in whole part to the actions of Owner. For delays extending beyond 30 days of overall Project delay, Contractor shall be entitled to submit a claim for damages resulting from such delays in accordance with this Contract.
My story. I was on a dam modification project in a remote area which was stalled for over a year. We had numerous pieces of equipment on the project as well as on site management specifically there for this project. We were made whole, but I had to do it when the Contracting Officer went on vacation for a week (the temporary “fill-in” Contracting Officer was much more agreeable to our position).