The Texas Supreme Court recently ruled that a “no-damages-for-delay” clause would not be enforced where the delay was caused by the owner. The court’s ruling flies squarely in the face of the contract language that attempted to insulate the owner from any delay claims, even those it caused.
In the case of Zachary Construction v. Port of Houston underlying contract, proposed by the Port of Houston, was heavy handed, to say the least. The contract provided:
[Contractor] shall receive no financial compensation for delay or hindrance to the Work. In no event shall the Port Authority be liable to [Contractor] … for any damages arising out of or associated with any delay or hindrance to the Work, regardless of the source of the delay or hindrance, including events of Force Majeure, AND EVEN IF SUCH DELAY OR HINDRANCE RESULTS FROM, ARISES OUT OF OR IS DUE IN WHOLE OR IN PART, TO THE NEGLIGENCE, BREACH OF CONTRACT OR OTHER FAULT OF THE PORT AUTHORITY. [Contractor’s] sole remedy in any such case shall be an extension of time.
Wow, that’s some one-sided language. If the contract was enforced, the contractor could not get any damages for delay, even those damages caused by the active interference of the Port of Houston.
During construction, the Port of Houston expanded the scope of the project. The parties entered into a change order with pricing based on the contractor’s proposed method of completion. After the change order, the Port of Houston insisted that the contractor resubmit plans to perform the work. Ultimately, the Port of Houston required the contractor to complete the project using the methods required by the Port of Houston, which caused delays and increased costs.
Not surprisingly, the contractor demanded that the Port of Houston compensate it for the increased costs of using the Port of Houston’s construction methods. The Port of Houston refused, citing to the no-damage-for-delay clause in the contract. The case went to trial and the jury found in favor of the contractor. Perhaps the juror realized that enforcing the no-damage-for-delay clause would simply not have been fair.
The case was appealed and the intermediate appellate court reversed. The case was then heard by the Texas Supreme Court, which reinstated the jury verdict. The Texas Supreme Court found that a no-damage-for-delay clause would not be enforced when an owner actively interferes with a project.
Takeaway: Fundamental fairness tells us that an owner should not be able to interfere with a contractor’s work and then expect to rely on a no-damage-for-delay clause to avoid liability. But, today’s legal environment also tells us that proving that the owner’s conduct was simply not fair can take a long time (8 years) and perhaps negotiating better contract language upfront will make the project run more smoothly.