Have You Been ‘Delayed’ or ‘Disrupted’? – Why the Distinction Matters

Ann B. Graff | Pepper Hamilton LLP | August 2017

No-damages-for-delay clauses are commonly found in construction contracts and, with certain exceptions, are generally recognized as valid and enforceable. The exact language can vary, but the typical clause provides that the contractor shall have no claim for compensation for delay and that an extension of time shall be the contractor’s sole remedy. While the case law is fairly uniform and well-developed regarding the effect no-damages-for-delay clauses have on claims for delay damages, whether these clauses also bar disruption damages is less clear.

“Delay and disruption” damages are often lumped together, but they have distinct definitions. “Delay damages” refer to damages “arising out of delayed completion, suspension, acceleration or disrupted performance.” 5 Philip J. Bruner & Patrick O’Connor, Construction Law § 15:29 (6th ed. 2002). These damages compensate a contractor that is injured when a project takes longer to complete than the construction contract specified. Conversely, “disruption damages” occur when a project may be timely completed, but at a greater expense to the contractor because of disruptive events caused by another party. Id. at § 15:102. Disruption damages compensate the contractor for the resulting reduction in its expected productivity in labor or equipment. Id.

Often, a no-damages-for-delay clause will also expressly bar disruption damages. And, even when the word “hindrance” or “disruption” is not expressly used, many courts have held that disruption damages caused by the breaching party’s delay are also barred by a no-damages-for-delay clause. See, e.g., Cleveland Constr., Inc. v. Ohio Pub. Emps. Ret. Sys., 10th Dist. No. 07AP-574, 2008-Ohio-1630, 2008 Ohio App. LEXIS 1403 (Ohio App. 10th Dist. April 3, 2008); The Law Co. v. Mohawk Constr. & Supply Co., 523 F. Supp. 2d 1276, 1285-86 (D. Kan. 2007) (contractor’s sole remedy of “schedule extension” for contractor’s delays barred subcontractor’s claim for disruption damages), rev’d on other grounds, 577 F.3d 1164 (10th Cir. 2009); U.S. ex rel. Tenn. Valley Marble Holding Co. v. Grunley Constr., 433 F. Supp. 2d 104, 109-11 (D.D.C. 2006) (holding that contractual provision allowing damages for delays “recovered on [Supplier’s] behalf by the Contractor from the Owner” barred disruption damages because “the ordinary meaning of the word ‘delay’” encompasses disruption damages that are caused by another party’s late performance.).

Recently, however, in Central Ceilings, Inc. v. Suffolk Construction Co., 75 N.E.3d 40 (Mass. App. Ct. 2017), the Massachusetts Court of Appeals refused to bar a subcontractor’s claim for disruption damages, holding that the no-damages-for-delay clause only precluded claims for “delay.” Central Ceilings involved the construction of three dormitories at Westfield State University. The dormitories were to be ready for occupancy by students arriving for the 2005 fall semester, with a substantial completion date of July 1, 2005. As an incentive for the general contractor, Suffolk Construction Company, to finish on time, its contract provided that it could earn a bonus for completing the project early or face liquidated damages for finishing late.

Central Ceilings, Inc. served as a subcontractor for installation of the exterior heavy metal gauge framing, drywall and hollow metal door frames. Critical to Central’s estimate and ability to timely complete its work was the “flow” of the project, with each aspect of work following in sequence, floor by floor, exterior to interior, building by building.

From the outset, the project was plagued by problems, as Suffolk failed to coordinate the work of other trades; failed to establish proper elevation, column and control lines from which Central worked to construct the building; failed to provide for and timely coordinate delivery of the hollow metal door frames; and failed to ensure that the buildings were weather-tight, all of which were essential to Central’s ability to complete its work.

As a result, Central’s workers were repeatedly forced to break down and remobilize to different areas to carry out different tasks, then go back and remobilize to complete the original task. Central’s supervisory personnel were also forced to spend an inordinate amount of time coordinating all of the changes and filling out related paperwork. The problems also resulted in significant trade stacking.

Given the substantial completion date and the related financial incentives and disincentives, Suffolk advised Central that no time extensions would be granted. As a result, while the start dates for various aspects of Central’s subcontract work were consistently pushed back due to Suffolk’s various breaches, the completion dates remained the same and the time within which Central had to perform was constantly compressed. Central was forced to assign additional manpower to keep the project on track. Ultimately, while the project was substantially completed on time, Central’s productivity was significantly impacted.

The trial judge found that Suffolk breached the contract and awarded Central damages for its lost productivity. The judge determined that the contract’s no-damages-for-delay clause did not apply because Central was not, in fact, seeking damages “for delay.” The appeals court upheld the judge’s ruling, rejecting Suffolk’s suggestion that the finding was in error because Central was seeking damages “caused by delays.” The appeals court noted that no-damages-for-delay clauses are strictly construed due to their harsh effects. In strictly construing the contract language, the appeals court found that Central was not seeking damages because it had been delayed but, rather, because it had been forced to increase its workforce due to the compression of the schedule caused by Suffolk’s breaches. Quoting the trial judge, the appeals court noted that “Suffolk’s breaches did not affect Central’s ability to complete its work on time . . . but, rather . . . its ability to complete its work on budget.”

Central Ceilings is not the only case to hold that disruption damages may be recoverable despite a no-damages-for-delay clause. In John E. Green Plumbing & Heating Co. v. Turner Construction Co., 742 F.2d 965 (6th Cir. 1984), the court agreed that the no-damages-for-delay clause, strictly construed, only barred delay damages and not damages due to hindering the contractor’s work. See also Mecca Constr. Corp. v. All Interiors, Inc., No. 06-3823, 2009 Mass. Super. LEXIS 253 (Mass. Super. Middlesex Oct. 16, 2009) (allowing contractor to recover increased labor and other costs required to timely complete the job in light of hindrances despite no-damages-for-delay clause).

Given the lack of consistency in case law regarding applicability of a no-damages-for-delay clause to claims for disruption damages, consider the following:

  1. Be familiar with the state’s law applicable to your project. Do not simply assume that disruption claims are barred by a no-damages-for-delay clause.
  2. When drafting a no-damages-for-delay clause, expressly include language to also bar disruption damages (i.e., “no claim . . . for hindrances or delays”; “delayed . . . or obstructed or hindered”).
  3. As a party seeking to recover disruption damages, be mindful of the distinction between delay and disruption damages and be sure to carefully characterize your claim in correspondence and claim filings.

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