DELAY CLAUSES IN CONSTRUCTION CONTRACTS

Delays on construction projects cost money. Because delays are typically the result of several factors and actors, contractors need to address delays and the apportionment of damages in their contracts.

No Damage for Delay Clauses

These clauses are exactly as they sound.  The enforceability of these varies from jurisdiction to jurisdiction.   South Carolina has ruled “In many respects, SC policy does not favor punishing a party for a delay arising from negligence and unlucky circumstances.  Generally, no-damage-for-delay provisions are valid and enforceable so long as they meet ordinary rules governing the validity of contracts.” U.S. for Use and Benefit of Williams Elec. Co., Inc. v. Metric Constructors, Inc., 325 S.C. 129, 132, 480 S.E.2d 447, 448 (1997). South Carolina recognizes several exceptions to this general rule, including “delay caused by fraud, misrepresentation, or other bad faith; active interference; delay which amounts to an abandonment of the contract; and gross negligence.” Id. at 137, 480 S.E.2d at 451.

Logic tells us that damages should be paid by the party causing the delay.  Very often, delays are caused by multiple parties relying on a condition which fails to occur or, sometimes, delays are simply the fruit borne from the confluence of confusion and justifiable misunderstanding.   

Drafting a No Damage for Delay clause can result in an instant debate settler and limit the likelihood of a lawsuit which might cause further delay and waste. Contractors and subcontractors faced with No Damage for Delay clauses can adjust their prices to account for increased risk or, in some cases, elect to pursue other opportunities.

Negotiation of Clauses 

Allocation of risk for delays should be considered and thoughtfully negotiated.   AIA and Consensus  Construction contracts frequently include some type of No Damage for Delay clause. For example:

No payment or compensation of any kind shall be made to the Contractor for damages because of hindrance or delay from any cause in the progress of the work, whether such hindrances or delays are avoidable or unavoidable;

or,

Contractor agrees that it may be subject to delay in the progress of the work and that the sole remedy for such delay shall be an extension of time;

or,

In the event the subcontractor’s performance of this subcontract is delayed by acts or omissions of the owner, contractor or other subcontractors, subcontractor may request an extension of time for the performance of this subcontract, but shall not be entitled to any increase in the subcontract price or to damages or additional compensation as a consequence of such delays.

Courts generally enforce No Damage for Delay clauses.  Courts generally enforce all contractual clauses between businesses.    One way for contractors and subcontractors to avoid such clauses is to use an unmodified industry form agreement such as ConsensusDocs 200 -Agreement and General Conditions between Owner and Constructor or ConsensusDocs 750 -Agreement between Constructor and Subcontractor which do not have No Damage for Delay clauses. But many owners and contractors will use their own form which will frequently include a No Damage for Delay clause.

Even if the contract includes a No Damage for Delay clause, the clause may prove to be unenforceable.

Next time we will examine exceptions to No Damage for Delay Clauses

As always, any questions in SC call or email Clay Olson.   843-224-6676 clay@harperwhitwell.com 

In Mississippi email James Harper james@harperwhitwell.com

The Miller Act and Performance Bonds

The Miller Act, 40 U.S.C. §§ 3131–3134, provides that, before any contract for the construction, alteration, or repair of any public building or public work of the United States of more than $150,000 (increased fris awarded to any person, that person (usually the general contractor) must furnish:

(1) A performance bond in an amount the contracting officer considers adequate for the protection of the United States;

The United States and federally created bodies such as GSA are the beneficiaries of the performance bond piece.  If an awarded prime contractor defaults in the performance of its work or is terminated for cause, the United States may turn to the surety to step in and take over the general contractor’s obligations under the prime contract.  Bond language allows the surety to bring another qualified entity to finish the work, at the surety’s expense on behalf of citizens.

 

The Miller Act: An Introduction

The Miller Act is codified at 40 U.S.C. §§ 3131-3134.  The Act requires a general contractor contracting with the federal government or a federal governmental entity for a construction project with a contract in excess of $150,000 to obtain both a performance bond and a payment bond.

The Miller Act’s primary function is to foster construction and development in the public sector, while protecting infrastructure and public projects from the potential lien rights of material suppliers and subcontractors.

Miller Act v. Mechanics Lien

When a subcontractor is not paid for labor or materials furnished to a prime contractor in a private construction contract, the aggrieved party is normaly able to seek recourse if not paid by taking out a mechanic’s lien against the property. However, the doctrine of sovereign immunity prohibits a lien being taken out against any public property, and this applies to construction contracts awarded by the federal government.

To afford subcontractors a form of redress, Congress enacted the Miller Act (40. U.S.C.A. § § 3131 and 3133).   In our next installment we will discuss specific details covered by the Act including the distinctions between a payment bond and performance bond.

If interested in this topic, please see next post on performance bonds.