Unforeseen delay tops the list of risks project owners want to eliminate by contract. Typically, this is accomplished through a “no damage for delay” (NDD) clause. An NDD clause provides that all forms of delay, even if excusable, are non-compensable. The sole remedy available to the contractor for delays is a time extension. This limitation applies even under circumstances where fault for the delay lies with the owner, the architect or their consultants and separate contractors.
Although a handful of states have enacted legislation invalidating NDD clauses (primarily in public contracts), most jurisdictions have ruled that a clear and unambiguous NDD clause is enforceable unless the contractor can show that the owner has engaged in conduct tantamount to fraud or bad faith. Most courts do, however, construe an NDD clause strictly against the party attempting to enforce it. As a result, NDD clauses lacking in clarity or conflicting with other contract provisions which allow delay compensation are likely to be disregarded.
In order to discourage abuse of the protections granted by NDD clauses, courts have tried to level the playing field by adopting a number of conduct-based exceptions to enforcement. An NDD clause will not generally be enforced where the party asserting it has engaged in 1) active or intentional interference with the progress of the work, 2) willful misconduct, 2) grossly negligent conduct or 3) conduct causing delays so unreasonable as to constitute an abandonment of the contract – sometimes called a “cardinal change.”
The Supreme Court of Maine upheld an NDD clause in a 1962 case known as Yonkers Contracting v. Maine Turnpike Authority but has provided no guidance on exceptions. The highest courts in New Hampshire and Vermont have not directly addressed the validity of NDD clauses, but there are lower court cases suggesting that NDD clauses in both states would be upheld. Massachusetts, Connecticut and Rhode Island have followed the majority and determined that NDD clauses are enforceable, subject to exceptions for arbitrary or bad faith conduct similar to that described above.
Given the difficulties in proving fraud and willful behavior, an outrageous level of misconduct is often necessary in order to overcome a well drafted NDD clause. As a result, it is important to consider the impact of these clauses during the bid stage and determine whether the risk is worthwhile and, if not, whether the NDD clause can be eliminated, or its impact reduced through negotiation.
For this reason, and many others, contractors and lower tiers must read the agreements presented to them carefully to identify NDD clauses that may be lurking in provisions regarding commencement, completion, compensation or schedule. Understanding the impact of NDD clauses, and the conditions under which they are enforceable, will help you better manage contracting risks.