Consider the following hypothetical:
Construction started on a large office building project. The owner/developer has tenants all lined up. The design team was responsible for obtaining all of the applicable permits for the project. Unfortunately, while the design team realized that the property was not zoned for the anticipated commercial use, the application had been submitted and local officials had assured the design team that the zoning change “was all but done”. Construction started as the owner had promised tenants an occupancy date.
A new local building official took office after construction started, learned about the zoning issue, and shut the project down until the zoning could be resolved – a process with unknown duration. The contractor advised the owner that all of its grading equipment was onsite and it was incurring $25,000 in delay damages each day. The owner immediately advised the design team of the potential claim.
What happens? Everyone immediately scrambles to review their contracts to see if they contain a no-damage-for-delay clause. A no-damage-for-delay clause is simply a provision in the contract where the contractor promises not to sue the owner if there are delays on the job that cause the contractor to incur unanticipated expenses. Such a clause might be:
The Contractor agrees to make no monetary claim for delays, interferences or hindrances of any kind in the performance of this Contract cause by any act or omission by the Owner and agrees that Contractor shall be fully compensated for any such claim by an extension of time to complete performance of the work.
In South Carolina, while no-damage-for-delay provisions are generally valid and enforceable, South Carolina’s exceptions substantially weaken the effect of such clauses. In Williams Elec. Co. v. Metric Constructors, Inc. 325 S.C. 129, 132 (1997), the South Carolina Court addressed the enforcement of such a clause. While the Court found no-damage-for-delay clauses generally enforceable, it adopted four exceptions that every contractor will argue applies to negate the clause. South Carolina’s exceptions are:
- If the party seeking to enforce the clause is guilty of fraud, misrepresentation or bad faith, the Court may refuse to enforce the clause.
- If the contractor’s progress has been interfered with by direct, active or willful interference, the clause will not be enforced.
- If the delay becomes unreasonably long, the court may find that the Owner abandoned the contract and its right to rely upon a no damages for delay clause.
- The delay is caused by the “gross negligence” of the party seeking to enforce the no damages for delay clause. The court will deem “gross negligence” with breach of the implied covenant of good faith and fair dealing.
While every owner and design professional should include a no-damages-for-delay clause in the contracts, if a potential delay occurs, they should not count on South Carolina’s courts to enforce them. If it appears that an event has occurred which might cause delay, a wise owner and design professional should immediately consider all other available options, including suspension of the work, upfront negotiation of reduced payment, and whether other work is available.