You Say Delay, I Say Disruption: The Fine Line Separating Owners and Contractors That Should Be Defined in Construction Agreements
The standard AIA construction contract (and typically non-AIA contracts) will have a provision entitled “no damage for delay” that includes language setting forth that if an owner delays or disrupts a project, a contractor may not recover money damages. Rather, the contractor’s remedy is limited to seeking an extension of time for completion of the work equal to the period of work stoppage caused by the delay or disruption. Rather than using or assuming these words interchangeably, owners and contractors may want to address the nuanced difference between “delay” and “disruption” when they contract. A recent federal case provides a helpful fact pattern to illustrate the difference. See case here.
An electrical subcontractor claimed the prime contractor breached their agreement and sought money damages due to disruptions of the subcontractor’s performance by the prime contractor. Initially, the prime contractor successfully had the case dismissed based upon the agreement’s “no damage for delay” provision. However, the Fourth Circuit Court of Appeals reversed, holding that references to disruptions in work raised claims and remedies distinct from those available due to a general delay in work, permitting the case to proceed.
How should owners or contractors deal with the impact of alleging “disruption” rather than “delay” to get around the restriction on damages under the contract, before this nuance in language turns into problematic and expensive litigation?
Because the traditional “no damage for delay” interchanges delays and disruptions as if they were the same thing, (i.e., a cessation of work for a period of time) the traditional contract will provide the same remedy for both delays and disruptions: issue a change order to adjust the project schedule and completion dates. But there are disruptions in productivity which may not impact the completion date, but nevertheless cause the contractor to incur costs. For instance, an owner may disrupt the “means and methods” of performing the work, something that should be left to the purview of the contractor, by unilaterally re-directing a subcontractor’s work or vendor’s delivery or by taking an increasingly assertive role in the permit approval process. These disruptions, though not necessarily causing the project to be delayed, may cause the contractor to incur unnecessary expenses.
Owners and contractors may benefit by a more precise definition of “disruptions” to include acts which may not necessarily fall under the “no damage for delay” provision, and therefore are not limited to the remedy of a change order extending the contract completion dates. A general framework for addressing non-delay disruptions may be to: (1) define “disruptions” by including those acts which interfere with the contractor’s responsibilities, such as its means and methods, oversight of subcontractors and dealings with a building department; (2) provide that the contractor give timely notice and an itemization of costs resulting from the disruption, including by a request for a change order; and (3) if reimbursement costs are not agreed, reserve the parties’ rights to make adjustments at an appropriate later stage, perhaps at the time of final completion when warranties and lien waivers are to be delivered and any retainage is to be released, or through the claims process governing other disputes between owners and contractors. Certainly more precise language will help to avoid disputes with the contractor that may impact the cost and timely completion of the work.