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Oftentimes, construction contracts include "no damages for
delay" clauses which bar a contractor from recovering
monetary damages caused by the owner's delays to the project.
Additionally, the same contracts may include provisions
which limit the contractor's remedy for project delays
to an extension of time only.
In Cleveland Constr., Inc. v. Ohio Pub. Employee Retirement
Sys., 2008 Ohio 1630 (Ohio Ct. App. 2008), Cleveland
Construction, Inc. ("General Contractor"), an Ohio general
contractor, entered into a $6.3 million interior trades contract
with the Ohio Public Employees Retirement System
("Owner") to build portions of a $90 million office tower in
downtown Columbus, Ohio. The parties' contract included a
no damages for delay clause and a clause which limited
General Contractor’s remedy for project delays to an extension
of time, regardless of additional costs resulting from
extended general conditions.
As work on the project advanced, Owner failed to properly
schedule and manage the project. As a result, General Contractor
was delayed in the prosecution of its work as Owner
did not provide up-to-date project schedules and had certain
trades perform work out of sequence. Consequently, General
Contractor sued Owner in Ohio state court for loss of efficiency
damages.
The Owner moved the court for a directed verdict and insisted
that General Contractor had waived its right to collect
loss of efficiency damages under the no damages for delay
clause. The trial court ruled that the waiver clause was unenforceable
under an Ohio law precluding a project owner
from disclaiming liability for a contractor's damages if the
owner caused a delay to the project. After the court rejected
the motion for a directed verdict, the jury found that Owner
had materially breached the contract and was liable to General
Contractor for $640,000 in increased costs.
On appeal, Owner took exception to the court's interpretation
of the statute. Specifically, Owner argued that General
Contractor's claim was one for acceleration costs, not delay
damages, and that acceleration costs were not expressly included
in the Ohio statute. Thus, the Owner contended, the
statute invalidating no damages for delay clauses was inapplicable
and General Contractor was barred from recovering
any damages, including its acceleration costs.
The Court of Appeals of Ohio, Tenth Appellate District,
disagreed. Specifically, it followed the trial court's decision
inasmuch as the concept of a "delay" broadly encompasses
schedule
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acceleration and loss of efficiency. A project
owner's delay, for example, could give rise to several types
of damages: inefficiency costs, acceleration costs, loss of
productivity costs, extended general conditions and unabsorbed
home office overhead costs. Although the Ohio statute
abrogating no damages for delay clauses did not expressly
include "acceleration costs," acceleration costs are
intimately associated with project delays. The court found
the legislature's purpose in invalidating no damages for delay
clauses was to prevent owners from escaping liability
when the owner caused the project delay. Liability in this
context, the court held, included the natural consequences
of a project delay (e.g., acceleration and inefficiency costs).
The second issue raised on appeal by Owner was whether
General Contractor was precluded from recovering delay
damages because General Contractor failed to request extensions
of time to complete its work at the time it became
apparent that the project would be delayed. In addition to
the no damages for delay clause, the parties' contract included
a provision which limited General Contractor's remedy
for delays to time extensions only.
The trial court, relying on the Ohio statute invalidating no
damages for delay clauses, held the remedy limitation
clause equally unenforceable. The appellate court agreed. In
its decision, the appellate court held that Ohio law clearly
invalidated any contractual provision that not only waived
liability for delay, but also limited any remedy for delay.
Because this contract provision was unenforceable, General
Contractor was not required to request time extensions. The
appellate court therefore upheld General Contractor's jury
award of $640,000.
As highlighted in Cleveland Construction, many construction
contracts include no damages for delay clauses which
either completely bar or limit the owner's liability to the
contractor for project-related delays. Many states, however,
including Ohio, California, Minnesota and Colorado, have
either completely abrogated or severely limited the enforceability
of these clauses. Accordingly, depending upon the
jurisdiction, the mere presence of such a provision does not
guarantee that the owner can enforce a no damages for delay
clause. As Cleveland Construction indicates, the concept
of a project delay generally includes damages which
one would naturally expect to result from a delay
(acceleration, inefficiency, etc). How a state conceptualizes
or defines a "delay" will therefore determine the extent to
which the no damages for delay clause is enforceable or
not.
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