Beware of No Damages for Delay Clauses
Arizona law bans no-damages-for-delay clauses in
prime contracts relating to public projects, but not to private contracts.
The law, consistent with typical notions of fairness,
generally allows contractors to recover monetary damages arising out of delays
caused by the project owner (or the general contractor, if the damaged party is
a subcontractor). Owners and general contractors are, however, seeking to avoid
these types of damages with increasing regularity by adding no damages for
delay clauses to their respective contracts and subcontracts.
These clauses (which can come in all different shapes
and sizes) typically attempt to eliminate or curtail a contractor’s right to
recover monetary damages stemming from all or certain types of delays caused by
the upstream party or parties on a project. Given the potentially severe
financial impact these provisions can have on the parties who are asked to
accept them, the provisions should be fully understood and carefully considered
before signing a contract.
The Enforceability of No-Damages-For-Delay Clauses
While the enforceability of no-damages-for-delay clauses
is entirely dependent on the state law governing the contract, they are, as a
general rule, enforced in most jurisdictions if the language of the clause is
clear and unambiguous.
This general rule is grounded in public policy, that contracts between
sophisticated parties should be enforced as drafted.
Yet this rule is not without its exceptions. Some states have legislatively
barred or restricted the use of no-damages-for-delay clauses, and others have
created common law exceptions to their enforceability.
For instance, in some jurisdictions where
no-damages-for-delay clauses are generally enforced, the clause will not
preclude a contractor’s right to recover 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
Similarly, in other jurisdictions, a contractor may
recover for unreasonable delays in the construction process notwithstanding the
presence of ‘no damage’ clauses, if the delay: (1) was of a kind not
contemplated by the parties, (2) amounted to an abandonment of the contract, (3)
was caused by bad faith, or (4) was caused by active interference.
The Enforceability of No-Damages-For-Delay Clauses in
In Arizona, the enforceability of a no-damages-for-delay
provision generally depends on whether the contract pertains to a public or
private project. As an initial matter, the Arizona Legislature has rendered
these clauses unenforceable in connection with public construction contracts.
Specifically, A.R.S. §§ 34-221(F) and 41-2617 provide that public 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. This section shall not be construed to void any provision in the
contract that requires notice of delays or provides for arbitration or other
procedure for settlement or provides for liquidated damages. (Emphasis added).
In fact, A.R.S. § 34-221(F) was directly at issue in
Technology Const., Inc. v. City of Kingman,
which is the first and only Arizona case interpreting a no-damage-for-delay
clause in a construction contract. In Technology Const., the City of
Kingman argued that the following clause insulated the City from liability for
its delays in connection with a railroad crossing improvement district:
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 8-619
inclusive) will the City or any officer thereof, be liable for any portion of
the expenses of the work aforesaid, nor for any delinquency persons owning
property assessed, nor for the failure of the City to sell its improvement bonds
to finance this contract.
229 Ariz. at 567 (emphasis in original).
But the Arizona Court of Appeals rejected this argument.
Instead, the Court of Appeals affirmed the trial court’s decision that the City
was liable for the delays it caused pursuant to A.R.S. § 34-221(F) and Section
109.8 of the MAG Specs (which incorporated § 34-221(F)), regardless of the no
liability provision in the parties’ contract.
Arizona’s legislative ban on no-damages-for-delay
clauses does not extend to contracts relating to private construction projects.
There are also no Arizona cases interpreting the enforceability of these clauses
in a private setting. Arizona law does, however, place a premium on upholding
parties’ freedom to contract.
In fact, it is well established that absent legislation specifying that a
contractual term is unenforceable, courts should rely on public policy to
displace the private ordering of relationships only when the term is contrary to
an otherwise identifiable public policy that clearly outweighs any interests in
the term’s enforcement.
Accordingly, and consistent with the prevailing rule in
most jurisdictions, no-damages-for-delay clauses in private construction
contracts are likely generally enforceable in Arizona. But in evaluating such
provisions, it stands to reason that Arizona courts would look at the various
exceptions developed in other jurisdictions for guidance.
In sum, no-damages-for-delay clauses shift the risk of
financial liability for delays caused by the contractee (i.e., the owner or
general contractor) to the contractor (or subcontractor, as the case may be).
Moreover, while unenforceable in connection with Arizona public construction
contracts, these provisions are likely enforceable in Arizona in contracts
pertaining to private projects. It is, therefore, critical for contractors and
subcontractors to identify and carefully consider these provisions before
signing a contract. Failure to do so could be financially disastrous.
Maurice T. Brunner, Validity and Construction
of No Damage Clause with Respect to Delay in Building or Construction
Contract, 74 A.L.R. 3d 187 at § 3 (1976).
See Green Intern., Inc. v. Solis, 951
S.W.2d 384, 387 (Tex. 1997).
Corinno Civetta Construction Corp. v. City of
New York, 493 N.E.2d 905, 909-10 (N.Y. 1986).
Peter Kiewit Sons’ Co. v. Iowa S. Utilities Co.,
355 F. Supp. 376, 397 (S.D. Iowa 1973).
229 Ariz. 564 (App. 2012)
See 1800 Ocotillo, LLC v. WLB Grp., Inc.,
219 Ariz. 200, 202 (2008) (holding [o]ur law generally presumes,
especially in commercial contexts, that private parties are best able to
determine if particular contractual terms serve their interests ...
[s]ociety also broadly benefits from the prospect that bargains struck
between competent parties will be enforced (internal citations