Damages For Delay? – Still No
Since 1983, provisions in a construction contract for public work which provide that the contractor shall not be entitled to any damages resulting from delay – even if caused by the acts or omissions of the public owner – have been held to be enforceable. These “no damage for delay” (“NDFD”) clauses have become the bane of contractors’ existence. The provisions have gravitated to private construction projects as well and have become a fixture in many major construction contracts.
The original theory behind the inclusion of such a clause is that a public owner is spending the public’s money and needs to know what a project will cost before embarking on it. If every project could be expanded to include the payment of damages every time the public owner causes a delay, the final cost would never be predictable.
Obviously, contractors see a different side of the story. They wonder why the state or city should be absolved of responsibility for its own incompetence. They see bid prices shooting upwards as every contractor must now pad its bid to account for the fact that it is prevented from seeking damages for the public owner’s “inept administration.”
Senate Bill Number 6686 was an effort to include a “damage for delay” clause in every public contract, affirmatively allowing a contractor damaged by “the act or omission to act of the public entity” to bring a claim for damages. It would have allowed a contractor to recover damages for delay, disruption, interference, inefficiencies, impedance, hindrance, or acceleration caused by the public entity.
In his veto message, Governor Cuomo lamented the extreme cost it would impose on a public owner. He stated that it would create a significant administrative burden to all public entities—the cost of which would have to be transferred to the taxpayer. He was critical of certain technical difficulties (who is a “contractor?” what “costs” are reasonable?).
What went unsaid is that an owner which is exculpated from the consequences of its own ineptitude will never be motivated to improve its performance. On most federal construction projects, contractors are permitted to bring claims for owner-caused delay, and therefore do not have to pad their bids for that contingency. Thus, the federal government (at least in theory) does not have to pay the bid “cushion” when a project is not delayed.
It is not surprising that public entities (and private owners too) love NDFD clauses. Whether it results in overall lower construction costs remains to be seen. Perhaps someday the Governor, or the courts, will determine that it should be against public policy for a party to insulate itself from liability for damages of its own making.
But for now, “no damage for delay” clauses live on.