Are No-Damage-For-Construction-Delay Clauses Enforceable?

Real estate owners may attempt to use “no-damage-for-delay” clauses to escape liability for the increased costs incurred by a contractor when a delay occurs due to the fault of the owner. These clauses shift the liability for a delay from an owner on to a contractor, or from a general contractor on a sub-contractor. However, courts may limit the scope of these clauses, as the Arizona Court of Appeals did in Technology Const. v. City of Kingman, 229 Ariz. 564, 278 P.3d 906, (App. 2012).

In Technology Const., the contractor (“TCI”) entered into a contract with the City of Kingman (“the City”) to construct a railroad crossing and make other improvements. The project was contracted to be completed in two phases, with the first beginning on June 1, 2005, and the second phase ending on March 15, 2006. However, TCI was unable to begin work until October 20005 because the City failed to provide a contract to sign and failed to give TCI notices to proceed with construction.

TCI later claimed an adjustment to their bid was needed due to the increased cost of asphalt caused by Hurricane Katrina. TCI’s bid had listed the cost of 359 tons of asphalt at $559,988.00, but the actual cost was $884,921.00. The City refused to pay, and TCI filed suit and won an award of damages for the cost increase in Maricopa County Superior Court. The City appealed.

The City argued that they were not responsible for the increased costs caused by their delay due to a clause in the construction contract that stated “IT IS EXPRESSLY UNDERSTOOD AND AGREED by the parties to this agreement, that in no case (except where it is otherwise provided for in Arizona Revised Statutes, §§ 48-571 to 48-619 inclusive) will the City or any officer thereof, be liable for any portion of the expenses of the work aforesaid, nor for any delinquency by persons owning property assessed, nor for the failure of the City to sell its improvement bonds to finance this contract.” However, also portions of the contract stated that the City would be responsible for additional payments due to changed scope of work, delay, or other changes by the City.

The Court determined that the City was responsible for increased costs caused by its own delay, citing A.R.S. § 34-221(F), which provides that “A contract for the procurement of construction shall include a provision that provides for negotiations between the agent and the contractor for the recovery of damages related to expenses incurred by the contractor for a delay for which the agent is responsible, which is unreasonable under the circumstances and which was not within the contemplation of the parties to the contract.” The Court of Appeals upheld the trial court’s decision and award to TCI for the damages caused by the City’s delays.

While no-damage-for-delay clauses will not be enforced for public construction projects, they may be a viable option for private construction projects, provided that they are carefully drafted.

Chernoff Law handles business and real estate litigation matters throughout Arizona. Contact us to discuss your case with an experienced real estate attorney.