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New Limitations On
"No Damages For Delay" Clauses
- James H. Landgraf,
Esquire
Historically, public
school districts in
New Jersey have had
available to them
the ability to
include what is
known as a "no
damage for delay"
clause within their
construction
contracts. The
effect of that
clause, if
incorporated within
the contract, is to
provide that if the
contractor(s)
experiences a delay
on the project, for
any reason other
than its own
responsibility,
recourse is limited
to seeking an
extension of the
time to complete the
project. An
effectively drafted
"no damage for
delay" clause can
prevent or limit a
contractor from
claiming that as a
result of design
issues, actions of
other contractors,
delays in shop
drawings and the
like, it sustained
delay damages. Such
a clause has been an
extremely valuable
tool to a school
district, which
typically has a very
limited budget and
very little direct
control over delays
or potential delays
on a project.
On August 8, 2001,
Chapter 206, P.L.
2001, was adopted to
take effect
immediately. That
law includes within
its terms an
amendment to N.J.S.A.
18A:18A-41, which is
the provision within
the Statutes that
allows a public
school district to
include a liquidated
damage provision
within its contract
documents. The
Amendment provides
as follows:
"Notwithstanding any
other provision of
law to the contrary,
it shall be void,
unenforceable and
against public
policy for a
provision in a
contract entered
into under Chapter
18A of Title 18A of
the New Jersey
Statutes to limit a
contractor's remedy
for the contracting
unit's, negligence,
bad faith, active
interference,
tortious conduct or
other reason
uncontemplated by
the parties that
delay the
contractor's
performance, to
giving the
contractor an
extension of time
for performance
under the contract."
The adoption of this
amended statutory
language will allow
contractors to now
seek delay damages
under all public
school construction
contracts where they
are delayed in
completing their
work as a result of
not only active
interference (which
has been a
historical exception
to a "no damage for
delay" clause) but
also standard
negligence or "other
reasons
uncontemplated by
the parties". As a
result, the
discovery of an
unforeseen site
condition, delay in
shop drawing
approval by the
district's
architect, delays by
co-prime contractors
and the like may now
serve not only to
allow the contractor
an extension of time
to complete its work
but also give rise
to a delay damage
claim. This can have
devastating
financial impact
upon a district.
Contractors' delay
costs have been
addressed in case
law both nationally
and within the State
of New Jersey on a
number of occasions
and can include the
costs incurred by
the contractor for
the additional time
that its project
trailer,
superintendent and
work forces are on
the site, any
increases in labor
rates or material
costs occasioned by
the delay, lost
productivity
resulting from
delays and general
delay costs known as
"unabsorbed home
office overhead"
costs. This last
category is a claim
by the contractor
that as a result of
having to stay on
the job for a longer
period of time it
was forced to focus
more of its home
office expenses,
ranging from its
principals' salaries
to secretarial help
to insurance, etc.,
to the project.
Under the more
standard
calculations, it
involves an analysis
of the contractor's
per diem home office
overhead costs which
are factored by the
percentage of
revenue that the
project bears to the
contractor's overall
work and then
multiplied by the
number of days of
delay. As can be
anticipated, such a
number can grow very
quickly to huge
proportions. On top
of all of these
"delay damage
calculations" there
is the potential
that a contractor
forced to stay on a
project for a longer
period of time may
now be in a position
to claim that its
bonding capacity was
absorbed by that
project thereby
preventing from
bidding other
projects; hence,
further delay
damages.
Prior to this
statutory amendment,
while a district
could not disclaim
and exclude
liability for its
own active
interference or bad
faith that might
cause delay, the
more standard
delaying factors
could be excluded by
the "no damage for
delay" clause.
Absent the ability
to include a "no
damage for delay"
clause, and mindful
of the potential
dramatic delay
damages that
creative contractors
can develop, it
becomes incumbent
upon the district to
be even more
diligent in the
preparation of its
contracts and in
assuring that the
contracts are being
properly
administered. Not
only must the
construction
contracts be
carefully analyzed
and revised, but
also contracts that
may be entered with
design professionals
and construction
managers must be
carefully
scrutinized to
assure that
appropriate
accountability will
exist. Errors and
omissions insurance
levels will need to
be carefully
analyzed. In the
event that a
district
contemplates using
multiple prime
contractors on a
project, very
detailed language
will need to be
included to deal
with the inevitable
coordination issues
that often result in
delays to one or
more of the
contractors' work.
In conclusion, for
construction and
design contracts
that will be entered
in the future by
school districts,
the district must
recognize that it
has lost a very
valuable shield.
Absent taking a more
diligent role in
developing its
contract documents
and assuring that
they are properly
administered, a
district will not
only face the normal
expenses in its
operations and the
public outcry which
result from a
delayed project but
will now be also
subject to what
could be
astronomical claims
for delay from the
contractors.
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