Where a contractor signed a contract with a municipality that included a clear and unambiguous “no damages for delay” clause, it was held that such a clause did not violate public policy, and that as a result of the clause the contractor was not entitled to recover its delay damages despite the fact that the delays were caused by the matters within the control of the municipality which were not contemplated by the parties.  In Markwed Excavating v. City of Mandan, 791 N.W. 2d 22 (North Dakota, 2010), the contract was for installation of sewer pipes that included tunneling under three roads.  The project was delayed by several weeks due to delays encountered by the city in obtaining certain temporary construction easements from a landowner.  The city granted the contractor a time extension but denied the contractor’s request for monetary adjustment in the amount of $400,000. In the lawsuit that followed, the trial court granted summary judgment to the city, and the appellate court affirmed on the basis that the contract language did not authorize an exception to the “no damages for delay” for delays that were not contemplated by the parties.  Thus, the only way the contractor could have recovered was if it proved the city was liable for negligent mispresentation.  But, since the only duty the city owed to the contractor was based on contract, the court held that pursuant to the economic loss doctrine, a tort (negligence) claim could not be brought by the contractor against the city for the economic losses.

The “no damages of delay” clause of the contract provided as follows:

Delays. The Contractor will not be entitled to any compensation for causes resulting in delays or hindrances to the work. Extensions of time will be granted for unavoidable delays, which in the opinion of the Engineer are clearly beyond the control of the contractor, resulting from causes such as Acts of Providence, fortuitous events and the like. The Engineer must receive written notice of claim for such delays from the Contractor before any extensions of time will be granted. Any extension of time will not relieve the Contractor or his sureties from their obligations which shall remain in full force and effect until the satisfactory discharge of the contract. The contractor will indemnify and hold harmless the owner and the engineer and their agents and employees from and against all claims, damages, losses and expenses including attorney’s fees arising out of or resulting from the performance of the work, provided that any such claims, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property including the loss of use resulting therefrom; and is cause in whole or in part by any negligent or willful act or omission of the contractor and subcontractor, anyone directly or indirectly employed by any of them or anyone for whose acts, any of them may be liable.”

As explained by the court,  “A  no damages for delay clause exculpates a project owner from liability for damages resulting from delays in the performance of the contractor’s work by ordinarily limiting a contractor’s remedy to an extension of time and is generally enforceable….”  Although some courts in other states have recognized an exception for delays that are beyond the contemplation of the parties, the court here found no public basis for doing so in this state.  Indeed, the court explained, “Our law recognizes a major public policy of ‘freedom to contract on terms not specifically prohibited by statute.”  The court further stated that “The clause serves an important function of protecting public entities contracting for public improvements on the basis of fixed appropriations. [Contractor] is a sophisticated contractor and could have protected itself against delays through a bid adjustment for the work.”  In other words, the court is saying that a prudent contractor could choose to increase its fixed price bid to the city to cover the contingency that it might have delays for which it has forfeited its right to recovery damages.

Another interesting aspect of this case involves the manner in which the court addressed a belated effort by the contractor to amend its complaint to include a cause of action against both the city and its engineering firm, based on alleged negligent misrepresentation that that the contractor could use land identified in the contract for storage of its equipment and materials during work, for their obligation to procure appropriate easements.   In rejecting the contractor’s plea to amend its complaint, the court stated that the language of the contract evidences an intent by the parties to the contract to limit the contractor’s remedies regardless of whether delays were caused by the city or some other contractor employed by the city, and this creates a “third party benefit to [City’s] other contractors, including [the engineer] for delays caused by their neglect.”

For these reasons, the court concluded that the alleged negligent misrepresentations do not prohibit enforcement of the clause.   The court rejected the contractor’s argument that the clause was unconscionable, and instead held the contractor was bound by the plain and unambiguous language of the clause.

About the author: Article written by J. Kent Holland, Jr.,  a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 13, No.5 (May 2011).

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