Virginia: Virginia Invalidates "No-Damage-For-Delay" Clauses in Public Contracting
 
December 16, 2004
 
Thomas M. "Tom" Brownell- Northern Virginia

The Virginia Supreme Court has made it considerably more difficult (if not impossible) for state agencies and municipalities to take advantage of “no-damage-for-delay” (NDFD) clauses in public contracts.

In Blake Construction Co., Inc./Poole & Kent v. Upper Occoquan Sewage Authority, 266 Va. 564, 587 S.E.2d 711 (2003), the Court ruled that the Virginia General Assembly meant exactly what it said when it enacted Section 2.2-4335(A) of the Virginia Public Procurement Act, which states:

Any provision contained in any public construction contract that purports to waive, release, or extinguish the rights of a contractor to recover costs or damages for unreasonable delay in performing such contract, either on his behalf or on behalf of his subcontractor if and to the extent the delay is caused by acts or omissions of the public body, its agents or employees and due to causes within their control shall be void and unenforceable as against public policy.

The public contract in question contained a blanket NDFD clause. It then attempted to bring itself within the terms of the statute by inserting a proviso that nevertheless granted the contractor the right to recover for “unreasonable” delays, which it went on to define as:

... the portion of any delay which is on the Critical Path as established by the Project Schedule in effect at the time of the asserted delay, and which is determined to be both unreasonable and not in any way the fault of the Contractor, and not to the entire duration of such delay, and which is (i) caused by the bad faith or willful, malicious or grossly negligent conduct of the Owner or the Engineer, or (ii) so severe that it constitutes an abandonment of the Contract by the Owner, or (iii) results from a failure of the Owner to meet its payment obligations to the Contractor, to provide Owner supplied materials or Equipment, if any, or to secure permits, rights-of-way, or easements for the procurement of which the owner is responsible and which are necessary and indispensable to the prosecution of the work.

The Authority argued (and the trial court agreed) that the language of the clause limiting recovery to “bad faith, malice, gross negligence or abandonment” merely defined “unreasonable” delays within the meaning of the statute and was not forbidden.

The Virginia Supreme Court reversed. The plain language of the contract clause, the Court ruled, required that for a delay to be compensable it must be both “unreasonable” and subject to conditions (“bad faith,” “malice,” etc.) that are the traditional exceptions to the strict application of NDFD clauses. See, e.g., United States f/u/o Williams Electric Co., Inc. v. Metric Constructors, Inc., 325 S.C. 129, 132-33 480 S.E.2d 447, 448-49 (1997) (no-damage-for-delay provisions are valid and enforceable so long as they are subject to exceptions for “(a) delay caused by fraud, misrepresentation, or other bad faith; (b) delay caused by active interference; (c) delay which has extended such an unreasonable length of time that the party delayed would have been justified in abandoning the contract; (d) delay that was not contemplated by the parties; and (e) delay caused by gross negligence”). This argument, the Court said, contradicts the express language of the statute, which states that “Any provision ... to waive, release, or extinguish the rights of a contractor ... shall be void.” Blake, 587 S.E.2d at 718.

Instead, the Court said,

The General Assembly has determined that in public construction contracts damages for unreasonable delay may not be extinguished as a matter of public policy. If the legislature intended to permit the contractor to extinguish or waive unreasonable delay damages in part by contract, it certainly could have done so by codifying the purported exceptions UOSA relies upon. ... In such a circumstance, parties may not contract to the contrary, and undo what the General Assembly has determined to be the public policy of the Commonwealth.

Virginia, presumably, will still enforce NDFD clauses in private contracting (to which Code Section 2.2-4335(A) does not apply). The ruling, however, places Virginia among the growing list of states that have refused to enforce NDFD clauses in public, and sometimes, in private, contracting. See Lecusay, The Collapsing “No Damages for Delay” Clause in Florida Public Construction Contracts: A Call For Legislative Change, 15 St. Thomas Law Review 425 (Winter 2002) (includes a survey of 50-state law on NDFD clauses).

While it is still possible that public contracting authorities may pursue other attempts to narrowly define the term “unreasonable” within the meaning of the statute, and while Blake on its face does not limit the right of a public owner to require strict compliance with “notice” requirements and other conditions precedent to a contractor’s right to recover for delays, the absolute, void-as-against-public-policy construction given by the Court to Code Section 2.2-4335(A) makes it increasingly likely that public contractors in Virginia will be able to recover for owner-caused delays without significant limitations.

For more information, e-mail Thomas M. Brownell at thomas.brownell@hklaw.com, or call toll free, 1-888-688-8500.