This is the second of a three-part series exploring the Texas Supreme Court’s decision in Zachry Construction Corp. v. Port of Houston Authority of Harris County. A summary of the case can be found at Part 1 of the series. Part 3 will address the lien waiver issues raised by the decision. This post considers the “no-damages-for-delay” aspects of the case, specifically exceptions to enforcement of such contract clauses.
What Zachry Says About No-Damages-for-Delay Clauses
The Texas Supreme Court began its analysis by noting that as a general rule, a contractor can assume the risk of, and not seek damages for, construction delays by agreeing to a no-damages-for-delay clause (“NDFD clause”) in a construction contract. The court, however, then went on to note five “generally recognized exceptions” to the enforcement of such clauses:
Because my practice is focused almost exclusively on construction projects in North Carolina, I focus far more attention on local case law developments than on appellate decisions from other states. But every now and again, a decision from some far-flung jurisdiction gets published that is just too big, too fascinating and too important to overlook.
Zachry Construction Corp. v. Port of Houston Authority of Harris County, handed down by the Supreme Court of Texas (the “Texas Supreme Court”) on August 29, 2014, is just such a decision.
“Time is money.” Sure, it’s an overused cliché. But as construction industry participants know better than just about anyone else, there’s a whole lot of truth in those three simple words. When projects run late, completion costs invariably rise, frequently resulting in the assertion of delay claims (and counterclaims. And third-party claims. And cross-claims … you get the picture). “No damages for delay” clauses in construction contracts seek to manage loss exposure arising from delay by limiting a contractor’s remedy for delay to a time extension only. A typical “no damages for delay” clause might read as follows:
The Owner shall not be liable to the Contractor and/or any Subcontractor for claims or damages of any nature caused by or arising out of delays. The sole remedy against the Owner for delays shall be the allowance of additional time for completion of the Work, the amount of which shall be subject to the claims procedure set forth in the General Conditions.~ Werner Sabo, Legal Guide to AIA Documents, 2008 (5th ed.)
Such clauses aren’t always enforceable. In fact, under North Carolina statutory law, “no damages for delay” provisions are unenforceable in prime contracts between public owners and general contractors. See N.C. Gen. Stat. § 143-134.3. But in all other cases where such clauses are enforceable, do they provide an impenetrable defense against increased costs arising from project delay? Not necessarily. Continue reading