I. Delay Damages
Delay of construction projects can impose substantial unanticipated costs. As a result, disputes regarding the delayed completion of construction work are one of the most common types of construction disputes. When the delay is caused, an injured party may seek to recover its actual losses or liquidated damages, depending on the contract. Actual delay damages may include lost profit, construction loan interest, and loss of use for owners; and increased overhead, insurance, project management costs, and materials and labor cost escalation for contractors. Liquidated damages refer to a stipulated sum that parties agree to in the contract in the event of a construction delay. An enforceable liquidated damages clause will grant specified damages for each day of delay. Such a clause precludes any recovery of actual damages even though stipulated sum may be less than actual damages sustained by the injured party.
In determining the costs and consequences of an event that causes delay, the first step is to assess that event’s effect on the project’s overall completion schedule. Delays that occur in the critical path delay the completion of the entire project, whereas delays outside of the critical path do not have this effect. For example, a delay in laying a building’s foundation will delay everything that follows, but a delay in painting the exterior will not impact when the interior is substantially and fit to be occupied for its intended purpose. “When claims are made for damages for delay, plaintiff must show that defendant was responsible for the delay; that these delays caused delay in completion of the contract (eliminating overlapping or duplication of delays); that the plaintiff suffered damages as a result of these delays; and plaintiff must furnish some rational basis for the court to estimate those damages, although obviously a precise measure is neither possible nor required.” Manshull v. Dormitory Authority of the State of New York, 436 N.Y.S.2d 724 (1st Dep’t 1981).
II. “No Damage for Delay” Clauses
Sophisticated project owners usually include “no damage for delay” clauses in their contracts. The purpose of these clauses is to shield owners from liability for time-connected financial losses resulting from changes in the design or scope of work and other events that increase a contractor’s costs.
A standard “no damage for delay” clause states: “The Contractor agrees to make no claim for damages for delay in the performance of this contract occasioned by any act or omission to act of the Owner or any of its representatives and agrees that any such claim shall be fully compensated for by an extension of time to complete performance of the work as provided herein.”
Ordinarily, recovery for a delay in construction will be precluded by a “no damage for delay” clause if the delay falls within the plain text of the provision. Tougher Industries, Inc. v. Dormitory Authority of State, 130 A.D.3d 1393 (3d Dep't 2015). These clauses are interpreted broadly, such that a clause generally referencing broad categories of delay will be deemed to have anticipated sources of delay which might not have been anticipated in practice. LoDuca Associates, Inc. v. PMS Construction Management Corp., 936 N.Y.S.2d 192 (1st Dep’t 2012)
However, there are exceptions to the general rule that a “no damages for delay” clause will be enforced. The leading case in establishing these exceptions is Corinno Civetta Const. Corp. v. City of New York, 67 N.Y.2d 297 (1986). In Corinno Civetta, the New York Court of Appeals affirmed a contractors' rights to sue for delay damages despite a “no damage for delay clause” under limited circumstances. The Court stated:
“Generally, even with such a clause, damages may be recovered for: (1) delays caused by the contractee's bad faith or its willful, malicious, or grossly negligent conduct, (2) uncontemplated delays, (3) delays so unreasonable that they constitute an intentional abandonment of the contract by the contractee, and (4) delays resulting from the contractee's breach of a fundamental obligation of the contract.”
Therefore, a “no damage for delay” clause is not absolute and will not be enforced under all circumstances, “no matter how flat and unqualified its terms.” Kalisch-Jarcho, Inc. v. City of New York, 58 N.Y.2d 377 (1983); see also Martin Mechanical Corp. v. Mars Associates, Inc., 158 A.D.2d 280 (1st Dep't 1990) (“whether recovery is in fact barred by this clause raises questions of fact”). However, these exceptions are interpreted narrowly.
III. Statutory Notice of Claim Requirements
Construction contracts often contain provisions that require prompt written notice of any act or event that caused delay as a condition to recover for the cost. Typically, substantial or even strict compliance with a notice provision is a condition to a contractor's right to recover for delay costs or even to receive an extension of time to complete work. Notice requirements should be complied with as closely as possible, as a failure to provide written notice can be fatal to a delay claim.
For public construction projects, notice requirements are set forth in statutes in addition to the contracts. Contractual terms specifying procedures for filing a claim do not, as a general rule, replace statutory requirements. Public Improvements v Board of Ed. of City of New York (P.S. 72, Bronx), 81 A.D.2d 537 (1st Dep’t 1981).
Notice of claim requirements vary by government entity and claim type. Contractors must consult counsel familiar with these issues as soon as they are aware that substantial completion of the project will be delayed in order to comply with contractual and statutory notice requirements.
New York City Administrative Code § 7-201(a) provides that in a breach of contract action against the City of New York, the complaint must contain an allegation that at least 30 days has elapsed since a demand or a claim was presented to the comptroller and that the comptroller failed to make an adjustment or payment of or for such demand or claim within the elapsed 30 days. Art. 56 of the City of New York’s Standard Form of Construction Contract requires lawsuits to be commenced within 6 months of issuance of a certificate of substantial completion. Thus, a notice of claim must be filed with the comptroller at least one month before this deadline. In addition, Art. 44 of the City of New York’s Standard Form of Construction Contract requires a final verified statement of claims to be filed with the Commissioner of the relevant City agency with the substantial completion requisition.
Actions against public authorities, such as the New York City School Construction Authority, New York City Housing Authority, the Dormitory Authority of the State of New York, and New York Power Authority, are governed by Public Authorities Law § 1744. It provides that a notice of claim against must be filed within three months after accrual of the claim. A lawsuit must be filed within 6 months after the claim accrues. The claim accrues when payment is denied, which could be well before the project is complete. When litigation is commenced, these public authorities will often argue that payment was denied based on answers to requests for information, partially rejected or ignored change orders, or other documents short of a clear denial. However, this firm has successfully rebuffed motions seeking dismissal on such grounds where the document did not constitute an unequivocal denial.
New York Education Law § 3813 requires that in every action against a school district, board of education, board of cooperative educational services or school a notice of claim must be filed within three months after the accrual of a claim and be presented to the governing body of a school district or school prior to the commencement of an action.
Pursuant to New York Court of Claims Act § 10(4), a claim against the State for breach of contract must be filed within six months after the accrual of the claim unless a notice of intention is filed within that time. If a notice of intention is filed, the claim must be filed within two years of accrual. All lawsuits against the State of New York must be filed in the New York Court of Claims, which has unique procedures and does not permit jury trials.
Notices of claim normally must contain certain information required by statutes applicable to the particular government entity involved. Pursuant to New York General Municipal Law § 50-e, the notice of claim against a public corporation shall set forth “the time when, the place where and the manner in which the claim arose”. Henrickson v. City of New York, 285 A.D.2d 529 (2d Dep't 2001). Failure to describe the nature of the Claim with enough specificity may result in the dismissal of the case. Caselli v. City of N.Y., 105 A.D.2d 251, 483 N.Y.S.2d 401 (2d Dep't 1984). As to claims against the state, Court of Claims Act § 11(b) requires that a notice of claim must specify the time and place where the claim arose, the nature of the claim, the items of damage sustained, and the total sum sought.
Conclusion
Contractual notice of claim provisions and statutory notice of claim provisions often create minefields for the unwary. Legitimate claims can be dismissed based on apparent technicalities if the claimant fails to retain counsel and seek guidance on the relevant contract provisions and remedies when a delay claim first arises. Frequently, delay claims are accompanied by disputed change order claims that are subject to similar notice requirements. Thus, even if a contractor believes that a dispute may be resolved through negotiation, it is best to seek legal advice when a dispute first arises. At a minimum, this will help to ensure that any notices are compliant with the contract and relevant statutes and that any relevant deadlines are calendared. Contractors that wait too long to seek legal advice are often devastated to learn that a multi-million-dollar claim has been waived based on their failure to comply with an arcane contractual or statutory requirement.
About Author
Sophie Wang graduated from the University of California, Berkeley School of Law in 2013, where she served as an editor of the Berkeley Business Law Journal. Read more.
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