The Legal And Financial Consequences Of Moving To A More Contractor Friendly No-Damage-For-Delay Cause

Adam J. Paterno is an Associate in our New York office.

According to the New York City Building Congress, Manhattan is poised to add roughly nine million square feet of new office space to its inventory between 2013 and 2015. If realized, this would be the highest volume of new office space added to New York City over any three-year period since 1990. New construction, plus renovations to older offices, will undoubtedly lead to increased activity in all facets of the New York metropolitan area's construction industry. Since most projects encounter delays, in at least some form, a well-drafted construction contract that addresses delay damages is critical to keeping a project on time and on budget.

No-Damage for Delay Provision

A no-damage-for-delay provision is one way to address delay damages. This type of provision excuses a party to a construction contract from certain liabilities that it would otherwise incur in the event of a project delay. Owners often use no-damage-for-delay clauses to shield themselves from unexpected increased costs that arise as a result of project delays. In return, contractors also often include such clauses to protect themselves from similar exposure in their subcontracts. Recently, the City of New York introduced a new no-damage-for-delay clause in its standard construction contract that makes it easier for contractors to claim delay damages. In doing so, the topic of no-damage-for-delay clauses has received increased attention within the local construction community.

New York's highest court affirmed the enforceability of no-damage-for-delay clauses in Corinna Civetta Constr. Corp. v. City of New York, but also outlined certain exceptions to their use whereby a contractor would be permitted to recover damages. The four exceptions are: (1) delays that are uncontemplated at the time of contract; (2) delays so unreasonable they amount to abandonment of the contract; (3) delays caused by breach of a fundamental obligation under the contract; and (4) delays due to bad faith, fraudulent misrepresentation or willful or grossly negligent conduct. 67 N.Y.2d, 502 N.Y.S.2d 681 (1986). In a separate case, New York's highest court also made it clear that any type of clause that limit one's liability for willful or grossly negligent acts is void under public policy. Kalisch-Jarcho, Inc. v. City of New York, 58 N.Y.2d 377, 461 N.Y.S.2d 746 (1983).

Since Corinna, New York courts have revisited the question of how narrowly...