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Why Construction Delays Might Not Get You Paid

Like taxes and death, delays are often inevitable when doing a private construction job. Because delays can often be anticipated in construction, the parties will often try to address them in the contract.  So-called “No Pay For Delay” (or “no-damages-for-delay”) exculpatory clauses in private construction contracts between owners and general contractors are increasingly common and ostensibly designed to insulate the parties from exposure caused by delays.  In actuality, however, such delay clauses usually protect the owners and prime contractors at the expense of subcontractors.  In practice, a typical delay clause provides that one party cannot proceed against the other party for damages suffered due to construction delays.  By agreeing to a delay clause, one party (usually a subcontractor), bears the risk of all delays during construction.

Although a majority of courts have recognized the validity of these delay clauses in private contracts (as a natural extension of the principle of freedom of contract), depending on the jurisdiction, they are still generally subject to the implied obligation/covenant of good faith and fair dealing, the implied obligation/covenant of cooperation, and a number of exceptions that have been recognized to counter the general harshness of the clauses (other jurisdictions, including Colorado and Oregon for instance, prohibit such clauses in public construction contracts as against public policy, and Massachusetts and Washington State prohibit them in public AND private contracts).

The exceptions to delay clauses vary from state to state and can include delay caused by fraud, bad faith, active interference, gross negligence, delays not within the contemplation of the parties, or abandonment of the contract.  The courts of the DMV (the District of Columbia, Maryland, and Virginia), take a varied approach when confronted with delay clauses.

Maryland, for instance, takes a literal approach and holds that delay clauses are enforceable even if the delay is not contemplated by the parties.  See State Highway Admin. v. Greiner Engineering Inc., 577 A.2d 363 (1990) (the court still recognized several exceptions to delay clauses, however).  The District of Columbia takes a dimmer view of delay clauses, strictly construing them and recognizing the various exceptions, including active interference on the part of the prime contractor as well as delays not contemplated by the parties.  Blake Construction Co. v. C.J. Coakley Co. Inc., 431 A.2d 569 (D.C. 1981).  While Virginia courts have not squarely addressed delay clauses in the context of private contracts (Virginia has invalidated delay clauses in public contracts, see Blake Construction Co. v. Upper Occoquan Sewage Authority, 587 S.E.2d 711 (2003)), there is at least one case that suggests Virginia will generally enforce a delay clause unless one of the aforementioned exceptions exists.  McDevitt & Street Co. v. Marriott Corp., 713 F.Supp. 906 (E.D. Va. 1989).   In addition, at least one Fourth Circuit case has addressed the notion of seeking damages for active interference which delays a job.  See Dennis Stubbs Plumbing, Inc. v. Travelers Cas. & Sur. Co. of America, 67 Fed. Appx. 789, 792 (4th Cir. 2003) (noting that while “there is no authority from Virginia directly on point, we think Virginia would recognize an independent claim for damages resulting from active interference that were not themselves delay damages.”).

The bottom line is this:  know your jurisdiction, understand their view of delay clauses and draft accordingly.  If you’re a subcontractor, be mindful of agreeing to a delay clause that’s so broad that it would arguably vitiate the various recognized exceptions, including those for active interference, which often seems to be the most viable method to circumvent a well-crafted delay damages clause.  Finally, be aware that the analysis of any exceptions to a delay clause can vary depending on the facts of the case.