The Key Exception to No Damage for Delay Clauses, Part 2

No damage for delay clauses—in which a contractor is granted time but no money for critical path schedule delays—are common in construction contracts. In response to the perceived unfairness of the clauses, many states have developed common law exceptions to the enforcement of the clauses in order to allow recovery of damages for delay. Courts have adopted one or more of the following five exceptions:

1. Delays due to owner’s bad faith or malicious or negligent conduct
2. Uncontemplated delays
3. Delays due to owner’s active interference
4. Delays so unreasonable that they constitute an abandonment of the contract
5. Delays resulting from an owner’s breach of a fundamental contract obligation

Perhaps the most litigated of these exceptions is the active interference exception. The cases are generally split, with some courts concluding that active interference requires proof of some bad faith or malicious intent, and other courts only requiring that the owner commit some affirmative, willful, intentional act that unreasonably interferes with the contractor’s work.

Those courts that do not require evidence of bad faith for application of the active interference exception generally recognize the bad faith exception and decline to give the active interference exception a redundant meaning. Other courts reach the same result, finding that the term “active” does not determine wrongdoing and that the term “interference” does not necessarily mean bad faith or other theories based on intent. In the court case C&H Electrical v. Town of Bethel, the Connecticut Supreme Court considered the issue of the meaning of the term “active interference.” Bethel is of particular importance because the contract expressly excluded all exceptions to the no damage for delay clause, except for the active interference exception.

However, Connecticut common law does not recognize an exception to the enforcement of no damage for delay clauses for active interference. In Bethel, the contractor argued that it was not required to show bad faith or gross negligence and the owner argued that it was required. The court held that bad faith or gross negligence was not required to establish active interference, only that the contractor must prove the following:

1. The owner committed an affirmative act that reasonably interfered with the contractor’s work.
2. The act was more than a mistake, error in judgment, lack of total effort or lack of diligence.

Although the contractor in Bethel won the battle in convincing the court to adopt the less demanding standard, the contractor ultimately lost the war. The contractor claimed that the owner’s direction to proceed with its work in remodeling a school when the owner knew there was asbestos abatement work to be done, which ultimately impeded the contractor’s progress, along with the owner’s failure to coordinate the other contractors’ work, constituted active interference.

The court found that the active interference exception did not apply because the owner believed that enough abatement work would be completed in advance so as not to delay the contractor’s work overall. This belief was later proven to be erroneous, but it still did not give rise to active interference.

As to the alleged failure to coordinate the work of the other contractors, the court found that this was not actually active interference because the owner had expressly excluded difficulty in coordinating the other contractors due to asbestos abatement as an active interference. The court found that the trial court had properly dismissed the contractor’s claims for delay damages.

Bethel teaches that, in advancing and defending delay claims, contractors and owners alike must closely review the case law of the jurisdiction to determine which exceptions to the no damage delay clause have been adopted and how they have been applied.

They must also scrutinize the contract clauses at issue to consider the owner’s rights in managing and directing the work. Additionally, contractors must scrutinize what the contractor’s reasonable expectations should be in view of those contract clauses. This is relevant because, based on those contract clauses, the court in Bethel stated that the contractor should have included contingency in its bid for the potential for delay due to the failure of the owner to coordinate the other contractors and, if it did not, the contractor assumed the risk of monetary losses.

This article is the second in a two-part series on no damage for delay clauses. Click here to read Part 1.