"No Damage for Delay" Clauses and Possible Exceptions

Anyone who has been a party to a construction contract likely has seen a "no damage for delay" clause before. These clauses limit the rights of contractors or subcontractors to recover in the event that their performance is delayed for some reason beyond their control. For example, if a contractor contracts with an owner to begin building a home in August, but a particularly rainy hurricane season pushes the job to October, a "no damage for delay" clause in the contract would probably prevent the contractor from recovering any damages from the owner for costs that resulted from the delay. Typically, these clauses will provide that the contractor may ask for and receive an extension to perform the job but are not entitled to an increase in the contract price or any kind of damages.

However, most of these clauses have an exception for "active interference" written into them. This means that an owner's or another contractor's active interference with the contractor performing the job on time can nullify the "no damage for delay" clause and allow the contractor to recover damages incurred as a result of the delay.

What constitutes "active interference" with the contractor's performance of duties under the contract can vary from state to state and depends on how courts in a state interpret these clauses.

North Carolina

North Carolina courts have not recently reviewed this issue, but in 1993, the N.C. Court of Appeals did hold that these clauses are generally enforceable and fair. This was in the case of APAC-Carolina, Inc. v. Greensboro-High Point Airport Authority, 110 N.C. App. 664 (1993). What type of conduct constitutes "active interference" with a contractor's "timely performance" of a construction contract in North Carolina has not been before the courts in recent years.

"Bad faith" is key in South Carolina and other states

In some jurisdictions, including Iowa, Michigan and New Jersey, "active interference" requires bad faith, or some kind of dishonest or unfair dealing, with the contractor who is trying to recover damages. In these states, some intentional action on the part of an owner or contractor that prevents the contractor from performing the work is required for the court to ignore a "no damage for delay" clause.

In South Carolina, bad faith or unfair dealing is very important when "no damage for delay" clauses are under review. The Supreme Court in 1997 adopted several exceptions to "no damage for delay" clauses and held that "delay caused by direct, active, willful interference with a contractor's work" is an exception to a "no damage for delay clause" because this kind of delay effectively violates the implied obligation of good faith and fair dealing that is an inherent part of all South Carolina contracts. The court also found that gross negligence by an owner or contractor that interferes with a contractor's ability to perform also is an exception to these clauses. Again, the court reasoned that this kind of negligence violates the duty to use good faith and fair dealing when forming contracts.
This comes from U.S. f/u/b/a Williams Electric Company, Inc. v. Metric Constructors, Inc. (1997.) In this case, the court found that the delays to Williams' ability to perform its duties under the contract were caused by Metric's "failure to properly coordinate and manage" the subcontractors.

Based on this holding, in South Carolina, one could conclude that "active interference" always equals bad faith and therefore could always have the potential to nullify a "no damage for delay" clause.

Unreasonably preventing a contractor from performing its work

Courts in other states, such as Colorado, do not require bad faith but instead will ignore a "no damage for delay" clause if a contractor or owner has taken some willful action that unreasonably prevents a contractor from performing its duties under the agreement. For example, an owner or project manager who instructs a contractor to begin working, even though the owner knows the site is occupied by another contractor, has actively interfered with the contractor's performance of its work. In a state such as Colorado, this contractor could still recover damages incurred due to its delays.

How to increase chances of recovery

In general, to increase chances of recovery for these types of delays, contractors should document the conditions of delay as thoroughly as possible. For example, if a site is clearly not ready for the job to begin or is still occupied by another contractor by the agreed-upon start date, photographs of the site as of this date would be key in any attempt to recover damages. In addition, the contractor should send written notice of these problems to the owner, general contractor or project manager.

For more information on this or any other construction-related topic, please contact Todd Jones or Caroline Lindsey with Anderson Jones, PLLC, Attorneys at Law at (919) 277-2541, or by email!