Five Steps General Contractors Can Take to Mitigate Against The Dangers of "No Damage for Delay Clauses"
No damage for delay clauses seek to protect owners from any monetary damages resulting from delays on a project. These clauses are common in Texas construction contracts. A no-damage-for-delay provision can limit a general contractor's ability to recover additional compensation when a project is delayed, potentially even when the delay is the fault of the owner or third parties.
In order to protect themselves from the dangers of these clauses in fixed-price contracts, general contractors should consider the following five steps:
- Review the Contract: It seems obvious, but this step is often overlooked—before signing any contract, general contractors should thoroughly review the contract, including the no damage for delay clause, to understand the risks and potential liabilities.
- Negotiate the Clause: If possible, negotiate the no damage for delay clause to limit the scope of its application or to provide some measure of compensation for delays caused by the owner or other parties. There are a number of ways to structure the clauses that provide some level of additional compensation without owners fearing that there are no price protections. These structures are beyond the scope of this introductory post, but will be discussed in upcoming posts on this subject.
- Identify Delay Risks: General contractors should identify and document any potential reasonably anticipated delay risks, including those caused by the owner, subcontractors, or other parties. This documentation can be used to support any claims for additional compensation and to show the owner that the general contractor is prepared to share in the risk of potential issues that inevitably come up on construction projects.
- Document Delays: The number one reason that owners will not approve additional compensation for delays is due to the failure of general contractors to document and communicate delays. It is imperative that general contractors keep detailed, real-time records of any delays that occur during the project, including the causes of the delay, the duration of the delay, and the impact on the project schedule and budget.
- Communicate with the Owner: In conjunction with documenting delays, general contractors should maintain open lines of communication with the owner throughout the project to discuss any delays or issues that arise and attempt to resolve them in a timely and efficient manner. It is always better to over-communicate and get in front of problems. While verbal communications are often warranted, all substantive communications should be in writing. If general contractors have verbal communications, these communications should be confirmed and documented in writing within 24 hours of such discussions.
By taking these steps, general contractors can protect themselves from the dangers of no damage for delay clauses in fixed-price contracts and minimize the risk of costly disputes and litigation. However, if a dispute arises over a delay claim, general contractors should timely seek the advice of legal counsel with experience in construction law to determine the best course of action. Legal counsel can often help guide the process and negotiate a reasonable resolution with the owner to mitigate against significant losses and the need for expensive litigation.
