Contracts are something that many people find boring but it can be extremely artful and creative if it is done properly in the right context. A construction contract has to have incredible forethought on the multitude of circumstances which can arise on a job and one example of that is the no damages for delay clause.
Some will say that a “no damages for delay” clause is harsh. Well, it depends on which hat you wear. If you are a contractor, you have a reasonable expectation that you will be paid for the extra work to overcome a delay beyond your control, especially if the owner causes or contributes to the delay. If you are an owner, you may have an expectation that the contractor is not going to get extra compensation when there are delays to the project. Who’s right?
In C and H Electric, Inc. v. Town of Bethel, 312 Conn. 843 (2014), the Connecticut Supreme Court held that a Contractor’s claims against a Town for delay damages could not overcome the “no damages for delay” clause because the Town’s conduct did not constitute “active interference” within the meaning of the contract. The Contractor was hired by the Town to perform electrical work on a high school renovation project. The project also involved asbestos abatement work performed by another contractor, whose work was supposed to have been complete prior to the start of all other renovation work. While only 70% of the asbestos work had been completed, the Town instructed the Contractor to commence its work, which was interrupted numerous times by the ongoing asbestos abatement work. The Contractor incurred additional costs for relocating and re-sequencing its work. The Town rejected the Contractor’s request for additional compensation.
At trial, the Contractor argued that the contractual “active interference” exception to the “no damages for delay” clause provided relief. Since the Town knew the asbestos work had not been complete, the Contractor argued that the Town should not have ordered it to begin the work. The trial court agreed with the Town’s argument that the notice to proceed was not in bad faith or malicious and, therefore, was not an active interference.
On appeal, the Connecticut Supreme Court agreed with the Contractor’s proposed interpretation that an “active interference” required a showing of an affirmative willful act that unreasonably interferes with the contractor’s work. However, the Court affirmed the trial court’s conclusion that the Town’s conduct was not willful or unreasonable because there was no showing that the Town actually knew the asbestos work would cause interference.
So what? Based upon the laws of other states, the Court in C and H Electric determined that there could not be an “active interference” without proof that the Town directed the Contractor to commence its work despite actually knowing that the Contractor’s
work would be delayed. There are a few lessons from this case:
- As a contractor, you need to first review your contracts for a “no damages for delay” clause. If one is present, then you will want to negotiate an “active interference” clause that defines what constitutes an active interference.
- An “active interference” could mean that the owner knows about the delay and still proceeds; or it could mean that the owner conceals or actively interferes by affirmative conduct.
- During performance, you should document the impact of the owner’s actions, including whether the owner failed in coordinating other trade contractors for which it alone is responsible.
- Even if your contract does not have an “active interference” exception, there may be a common law remedy of bad faith or negligence on the owner’s part, which causes the delays. That would depend on your particular state.
In the end, the dispute will be decided on the express contract language and the offending conduct giving rise to the additional damages and delays.