Contractors and Subcontractors: You May Be Entitled To Damages in Spite of a No Damage for Delay Clause

Specialty subcontractors who work with large general contractors on a regular basis are likely to be familiar with the standard “no damages for delay” contract language that bars the subcontractor from recouping profits lost as a result of project delays not caused by the subcontractor.   In these cases, the subcontractor is entitled only to an extension of time to complete its work on the project. Although a “no damages for delay” clause is typically used as a shield by general contractors against claims for time and cost overruns, a recent Superior Court decision demonstrates that such contractual language may also be used as a “sword” by subcontractors who have been denied their request for additional time to complete the work.

The plaintiff subcontractor in Central Ceilings, Inc. v. Suffolk Constr. Co. (C.A. SUCV2006-04129-A) was responsible for the drywall and ceiling portions of a new residence hall erected at Westfield State College by Suffolk Construction.    During the course of construction, Suffolk made several design errors and breached a number of its project management responsibilities under the general contract, including its responsibility to coordinate delivery of window and curtain walls in a timely manner, and to provide winter climate protections for the project. These breaches of the general contract by Suffolk impeded Central Ceilings’ ability to perform its subcontract in the originally contemplated timeframe, however, when presented with requests for time extensions in compliance with the subcontract’s “no damages for delay” clause, Suffolk refused.   Ultimately, Central incurred over $300,000 in “loss of productivity” damages on its subcontract at Westfield State, for costs relating to the constant mobilization and de-mobilization of manpower and equipment; repairs to its completed but subsequently damaged work; and increased manpower and supervision necessary to comply with the original schedule, which became severely compressed as a result of Suffolk’s breaches under the general contract.

After seven years of litigation and an 8 day jury-waived trial, Central was awarded the total amount of its cost overrun on the project (actual costs — projected costs).   In finding for Central, Judge S. Jane Haggerty of the Superior Court rejected Suffolk’s contention that Central’s damages were barred by the “no damages for delay” clause included in the parties’ subcontract, on several grounds.     The Court first noted that, to the extent that any of Central’s damages could be viewed as resulting from “delay,” Suffolk had breached its duty under that clause to provide Central with the requested time extensions to finish its work.   Given Suffolk’s failure to provide Central with this “contractually mandated” remedy, the Court found no reason to uphold the limitation on Central’s damages.

Moreover, in distinguishing between an “idle workforce” and an “increased workforce” the Court found that Central’s damages were not in fact caused by any actual delay on the project, but only the possibility of delay, to which Suffolk responded by forcing a compressed schedule upon Central.   In cases of actual delay, the subcontractor suffers damages in the form of mobilized equipment and manpower that remains idle; in cases of lengthy delays, the subcontractor may even lose the ability to bid and work on other projects. On the other hand, compression or “acceleration” of the work schedule leads to the active employment of additional labor and equipment than that originally scheduled for the project.   In the end, both situations lead to the same general result for the subcontractor— increased overhead and the inability to complete work on budget.   In Central’s case, the Court implicitly found that the subcontract between Suffolk and Central allowed Suffolk to avoid either project delay or acceleration costs, but not both.

It should also be noted that there was a clear element of perceived fairness and equity underlying the Court’s decision in Suffolk v. Central, as the damages awarded to Central were not solely the result of project acceleration, but the product of a multitude of factors, including negligent supervision that resulted in damages to Central’s original work.   The Court characterized Suffolk’s actions as creating “hindrances and interferences” with Central’s subcontract, finding that Suffolk’s failure to competently perform certain design and management tasks under the general contract impeded Central’s ability to perform its work under the parties’ subcontract.

The pending appeal on Suffolk v. Central will certainly raise a number of interesting issues.   While “no damages for delay” clauses remain enforceable in Massachusetts (as opposed to most other jurisdictions, where they are void as a matter of public policy), Judge Haggerty’s decision implies that such language cannot be used by a general contractor to pass off the costs of its own negligence onto customers.   Yet many general contractors already attempt to do so through modified delay clauses that not only disclaim responsibility for delay damages, but condition any time extension for subcontractor’s work on “project owner approval.”   Whether the Appeals Court will issue a decision that broadly addresses the limits of “no damages for delay” remains to be seen.