“No-damages-for-delay” or “exculpatory” clauses in construction contracts between owners and general contractors are designed to protect owners from exposure caused by the delays that often occur on construction projects. Contractors and subcontractors, in turn, often include such clauses to protect themselves from like exposure.
The Court of Appeals generally affirmed the enforceability of such clauses more than 25 years ago in Corinna Civetta Const. Corp. v City of New York, 67 NY2d 297 (1986). The High Court also affirmed the existence of certain exceptions to the general rule: (1) When delays were not contemplated at the time of contract; (2) Delays so unreasonable to be considered abandonment of the contract; (3) Delays caused by a breach of a fundamental obligation under the contract; and (4) Delays through bad faith, fraudulent misrepresentation, willful or grossly-negligent conduct.
Since Corinna, New York courts have revisited time and again the question of how narrowly these exceptions should be interpreted. According to the Second Department in Plato Gen. Const. Corp. v Dormitory Authority of State of New York, 89 AD3d 819 (2d Dept 2011), exculpatory clauses are alive and well, remain broadly applicable, and are difficult to defeat by invocation of an exception.
Plato involved the renovation of the Brooklyn College Library under a $20 million contract between plaintiff Plato General Construction Corp. as “Contractor” and defendant Dormitory Authority of the State of New York as “Owner.” The parties entered into the contract on May 20, 1999, which provided for completion of the renovation by March 20, 2001.
The contract contained the following exculpatory clause:
No claims for increased costs, charges, expenses or damages of any kind shall be made by the Contractor against the Owner for any delays or hindrances from any cause whatsoever; provided that the Owner, in the Owner’s discretion, may compensate the Contractor for any said delays by extending the time for completion of the Work as specified in the Contract.
Should the Contractor sustain any damage through any act or omission of any other contractor having a contract with the Owner or through any act or omission of any Subcontractor of said other contractor, the Contractor shall have no claim against the Owner for said damage.
The contract also entitled DASNY to liquidated damages from Plato of $1,000 per day for every day beyond the completion date and required Plato to submit all change orders to DASNY for its approval.
Plato did not turn over the renovated library until August 28, 2002, more than 17 months after the completion date. The belated delivery of the premises was caused by, inter alia, delayed installation of Con Ed chiller lines, delayed access to the site due to a failure to vacate the premises, termination and replacement of the initial HVAC contractor and redesign of related drawings, and asbestos abatement work.
Plato sued DASNY to recover approximately $16 million in delay damages. Relying on the exculpatory clause, DASNY denied liability and counterclaimed for approximately $400,000 in liquidated damages measured from the completion date to the date the library was turned over, less a 115-day extension granted by DASNY through the approval of change orders submitted by Plato.
The trial court awarded Plato approximately $10 million, finding among other things, that DASNY could not rely on the no-damage-for-delay language because: (1) DASNY’s approval of change orders in connection with the delays constituted a waiver; (2) DASNY breached the contract by failing to meet its obligations regarding, inter alia, scheduling and coordination of the work, provision of a competent HVAC contractor and design, and timely removal of materials from the premises; and (3) Some of the delays, including the installation of the chiller lines and asbestos abatement, were not contemplated at the time of contract.
The Second Department reversed, vacating the $10 million judgment in favor of Plato and awarding DASNY $179,000 on its counterclaim. Specifically, the Second Department held that Plato’s allegations regarding DASNY’s failure to properly schedule and coordinate the work amounted to “poor planning and administration, which would not render inapplicable the no-damages-for-delay clause.” The Court also held that the change-order requirements necessarily meant that the parties had contemplated delays at the time of contract. Finally, while the Court acknowledged that DASNY’s approval of change orders “constituted a waiver of the no-damages-for-delay clause with respect to the delays specified in those change orders,” evidence of concurrent delays caused by Plato precluded any recovery. Thus, the Court concluded that “the award of delay damages to Plato was not warranted by the facts, and must be set aside.”
The moral of this story is that even under the most seemingly extreme circumstances, an exception to a no-damage-for-delay provision in a contract may in fact be out of reach. Owners and contractors alike should be aware of the risk involved in including these provisions in their contracts.