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Thursday, February 25, 2016

Active Interference and The No Damage for Delay Clause

Active Interference and The No Damage for Delay Clause

            No Damage for Delay Clauses are designed to pass the risk of project delays and their costs to a specific party (generally the contractor). These clauses are recognized as valid and enforceable in the State of Florida. See McIntire v. Green Tree Communities, Inc., 318 So. 2d 197 (Fla 2nd DCA 1975); Southern Gulf Util., Inc. v. Boca Ciega Sanitary Dist., 238 So. 2d 458, 459 (Fla. 2d Dist.Ct.App.1970); Pertun Constr. Co. v. Harvesters Group, Inc., 918 F.2d 915, 919 (11th Cir.1990). These clauses can seem harsh when faced with the reality that delays on construction projects are very common. Because of this reality, Florida courts have created several exceptions to enforcement. Situations in which it would be unfair to bar recovery to contractors who have been delayed in completing their work through no fault of their own. These judicially created exceptions are: active interference, concealment and fraud.

            Active interference is perhaps the most common exception. It is based on the idea that one party to the contract is purposefully interfering with or getting in the way of the other party’s ability to perform the contract.[1] It has been characterized as a “knowing delay which is sufficiently egregious”. United States v. David Boland, Inc., 2006 US Dist. Lexis 66568 (Fla. Middle District 2006). The case of Newberry Square Dev. v. Southern Landmark, Inc., 578 So. 2d 750 (Fla. 1st DCA 1991) is instructive. In Newberry, a contractor entered into a contract with a developer for construction of a shopping center. The parties’ contract contained a no damages for delay clause. The developer sought an appeal of a lower court order awarding its contractor damages for delays in project completion. The contractor argued that the developer actively interfered with its work by delaying the approval of plans, change orders and payments. The contractor presented evidence at trial that such delays were a result of a personal falling out between the parties where the developer vowed he “would break [the contractor] before he’d pay.” Id. at 752. The developer argued that the contractor could not be awarded delay damages because the contract contained a no damage for delay clause. The appellate court ruled that the developer actively impeded the contractor’s performance and as such refused to enforce the clause.

            In a similar case out of North Dakota, a steel erection subcontractor on a public project was awarded delay damages despite the existence of a no damages for delay clause because it found that the steel subcontractor was told, "to put up steel wherever it could . . . to demonstrate to [the County] that progress was being made." The Construction manager on the project rejected the subcontractor’s plan to erect the steel in a conventional "inside-out" fashion and demanded that they erect the steel "outside-in" manner which caused delays. The court found this directive to have interfered with the subcontractor’s means and methods and its ability to finish its work timely. C&C Plumbing & Heating, LLP v. Williams Cty., 848 N.W.2d 709, 716 (N.D. 2014).
In the recent case of John Spearly Constr., Inc. v. Penns Valley Area Sch. Dist., 121 A.3d 593, 603 (Pa. Comm. Ct. 2015), a County’s design team was held responsible for delays notwithstanding the existence of a no damages for delay clause where there was evidence to suggest that design team hired by the County failed to make timely decisions on the project schedule and failed to properly coordinate the work of the various trades.

            Additional bases for avoiding no damage for delay clauses have been found in cases of: owner abandonment, unanticipated delays, refusal to grant required time extensions and breach of an essential contract obligation. See Corrino Civetta Const. Corp., v. City of New York, 67 N.Y. 2d 297 (NY. 1986); Triple R Paving, Inc., Broward County, 774 So. 2d 50 (Fla. 4th DCA 2000); Castagna & Son, Inc., v. Board of Educ., of City of New York, 173 A.D. 2d 405 (1st Dep’t 1991); Pertun Const., Co., v. Harvesters Group, Inc., 918 F. 2d 915 (11th Cir. 1990). For example, in John E. Green Plumbing, a case before the 6th circuit, a plumbing and fire sprinkler subcontractor on a public project sought damages as a result of the contractor’s project oversight, doing work out of sequence and delay in design changes/edits. The contract contained a no damage for delay clause. In strictly construing the clause, the 6th circuit held that “Delay damages . . . refers simply to the cost of an idle work force. . . [the subcontractor] is not arguing that it suffered damages from delay but rather that is suffered damages from obstacles created by Turner.” Id., at 967.[2]

            In another interesting case out of the 7th circuit, a contractor represented to its subcontractor that it would pay for extra costs associated with project delays created by the owner. As a result of these representations, the court found that the contractor had waived the no damages for delay clause in the parties’ contract. Chicago College of Osteopathic Medicine v. George A. Fuller Co., 776 F. 2d 198 (7th Cir. 1985).

         Contract negotiations are a critical part of a construction project. Understanding what rights, obligations, risks and liabilities you may be agreeing to in a contract is not as straightforward as it may seem. You should, before signing any contract for the performance of construction services consult with an attorney who is knowledgeable with Florida’s Construction Law and Contract negotiations.


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[2] The court further defined a delay as, “time lost when work cannot be performed because the necessary preliminary work had not been completed”. Id., at 966.