Construction Contracts
Clarification of “No Damages for Delay” Exception in Construction Contracts
Alston & Bird LLP
March 24, 2015
Construction contractors often find themselves subject to “no damages for delay” clauses, which shield property owners by preventing contractors from recovering costs that accrue as a result of delays by owners. Such seemingly simple clauses can result in expensive ramifications for contractors if and when owners take actions that result in delays. For this reason, contracting parties can include an “active interference” exception, which allows contractors to recover for costs stemming from owner-induced actions that actively interfere with contractors’ work. The Connecticut Supreme Court recently defined the kind of interference that plaintiffs must prove to recover delay damages in the face of a no damages for delay clause with an active interference exception. The court concluded that to establish active interference, a contractor must prove that an owner committed an affirmative, willful act that unreasonably interfered with the contractor’s work. The court also clarified that a mistake, error in judgment, lack of diligence, or lack of effort is not the kind of interference sufficient to meet the standard.
This case involves renovations to a school in Bethel, Connecticut. When the city hired C&H Electric to perform electrical work and instructed it to commence, the city did not inform C&H that asbestos abatement work on the school remained unfinished. The city openly discussed the remaining abatement work at town meetings, but did not directly notify C&H, which worked for a number of months before the abatement work interrupted its electrical progress. When the asbestos contractor began abatement work, C&H was barred from certain areas of the school building and had to move its crews and equipment. Although C&H completed the work close to the deadline, it brought a claim for additional compensation against the city, arguing that the city actively interfered with C&H’s work by ordering C&H to begin despite knowledge that asbestos abatement would affect construction. The contract expressly excluded any exercise of the city’s rights under the contract from the definition of active interference, such as ordering changes in the work or rescheduling work, meaning that the city would only face liability if the delay was unreasonable.
The trial court ruled in favor of the city, holding that to prove active interference, a contractor must show that the owner acted in bad faith, or engaged in willful, malicious, or grossly negligent conduct, and that the city did not meet this stringent standard. On appeal, the Supreme Court of Connecticut affirmed the decision, but determined that the trial court applied the incorrect standard. The court clarified that a contractor must only prove that the owner committed an affirmative act that was willful and unreasonably interfered with the contractor’s work but was not a mistake, error in judgment, lack of diligence, or lack of effort. The court concluded that the facts of the present case were insufficient to meet the active interference standard, even after lowering the bar. According to the court, because the record lacked evidence of city representatives having knowledge that unfinished asbestos work would affect C&H’s work, the interference was not willful or unreasonable.
Although the clarified standard reduced a contractor’s burden in proving active interference by a property owner, this case confirms that the standard is still difficult to meet. In Connecticut, contractors need not prove egregious actions by property owners, but must still be able to show that the actions were willful rather than mistaken. The rules regarding active interference vary by jurisdiction and are often dictated by statute. Contractors and property owners should be sure to understand these rules when negotiating and drafting no damages for delay clauses.
C and H Electric, Inc. v. Town of Bethel, 312 Conn. 843 (2014)
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SOURCE: www.lexology.com