Texas Supreme Court Limits The Enforceability Of No-Delay-Damages Provisions

The Texas Supreme Court held that a no-delay-damages provision cannot shield an owner from liability for deliberately and wrongfully interfering with a contractor's work. Zachry Constr. Corp. v. Port of Houston Auth., No. 12-0772, 2014 Tex. LEXIS 768, at *43 (Tex. Aug. 29, 2014). The court not only reaffirmed five exceptions to the enforceability of no-delay-damages provisions but also held that, as a matter of public policy, such provisions cannot be enforced—regardless of what the contract states—if the delay resulted from the owner's deliberate, intentional, and wrongful conduct, which may include instances where an owner's decision results in the increased delays.

The Zachry opinion may aid contractors seeking to avoid the effect of no-delay-damages provisions in the face of actions by an owner, and serves as a warning to owners that reliance on contractual provisions is not a foolproof defense where the owner plays an active role in project management decisions that result in longer time periods and higher costs.

Background

Zachry Construction Corporation ("Zachry") and the Port of Houston Authority of Harris County ("the Port") entered into a contract for Zachry to construct a wharf on the Bayport Ship Channel. The Port set a two-year completion schedule. To accommodate the Port's aggressive timetable, Zachry developed a plan using soil dredged from the channel to construct an eight-foot-wide earthen berm and form a wall around the future construction area. Zachry installed a refrigerated pipe system in the wall delivering super-cooled brine, freezing the wall and keeping the work area clear and dry.

Nine months into the project, the Port sought to increase the size of the wharf by 332 feet. Zachry proposed building another freeze wall to complete the additional construction under dry conditions, but the Port apparently had concerns that this plan might destabilize piers near the construction site. The Port, however, did not raise its concerns with Zachry at the time, and a change order was then issued based on Zachry's plan.

Two weeks later, the Port ordered Zachry to resubmit a plan without the freeze wall. Zachry attempted to dispute this directive, but the Port refused to negotiate. Zachry finished the original section of the wharf, removed the freeze wall, and continued work on the additional 332-foot extension. The completion of the additional section without the aid of the freeze wall took substantially longer, which resulted...