By Brent Carpenter, ShareholderThis article originally appeared in the June 25, 2021 edition of the Daily Journal of Commerce Oregon.
Many private construction contracts contain what are known as “no-damages-for-delay” provisions. These provisions typically provide that a contractor may not recover damages (i.e., money) from the owner for owner-caused delays, or in the case of a subcontract that the subcontractor may not recover damages from the general contractor for delays. These provisions do not typically prevent a contractor from recovering contract days (i.e., time), but instead act as a bar to what is known as compensable delay.
For public construction contracts in Oregon, such provisions are unenforceable by statute. The statute does not address the enforceability of such provisions for private construction contracts. In Washington, such provisions are unenforceable by statute for both public and private construction contracts. While several states have, like Oregon, declared by statute that no-damages-for-delay provisions are unenforceable in public construction contracts, Washington is the only state that has declared them unenforceable in both public and private construction contracts.
The enforceability of these provisions in private construction contracts in Oregon is an open question. The majority of jurisdictions—27 states plus the District of Columbia—have held that no-damages-for-delay clauses in private contracts are enforceable with exceptions. Courts in those jurisdictions have recognized some variation on the following exceptions:
- Delays not contemplated by the parties;
- Delays caused by fraud, concealment, misrepresentation, bad faith, or willful, malicious, or grossly negligent conduct;
- Delays amounting to active or direct interference; and
- Delays so unreasonable that they constitute an intentional abandonment of the contract.
For contractors in Washington, the law is clear—no-damages-for-delay provisions in both public and private construction contracts are unenforceable by statute. However, contractors in Oregon have little guidance as to whether a no-damages-for-delay provision would be upheld by a court with or without exceptions. Given that the majority of jurisdictions allow exceptions to no-damages-for-delay clauses in private contracts; that among those states is the neighboring state of California; that Oregon prohibits such clauses in public contracts; and that Washington prohibits such clauses altogether, it seems somewhat likely that a court would find that the exceptions listed above apply in Oregon. Stated another way, it seems unlikely that a court would side with the decided minority of jurisdictions which allow no exceptions.
Assuming the exceptions do apply, what sort of claims would they allow? Examples of such conduct would be unreasonably withholding notice to proceed or unreasonably restricting access to the project site. In Washington, contractors clearly have a path to recovery for damages caused by such delays. In Oregon, it seems somewhat likely that a court would allow such damages, but perhaps subject to limitations.
Thus, contractors who enter into private construction contracts in Oregon which contain a no-damages-for-delay provision should be aware of the unsettled nature of the law regarding these provisions. The spectrum of possibilities ranges from a court deciding to determine that no-damages-for-delay provisions in private contracts are void as a matter of public policy to a court enforcing such provisions without exception. The two extremes seem unlikely and the likely outcome would probably be somewhere in the middle. As with any such ambiguity, contractors should seek to mitigate the associated risk through smart contract negotiation.
Brent Carpenter is a shareholder at Jordan Ramis PC and focuses his practice on construction law. Contact him at (503) 598-5524 or firstname.lastname@example.org.