Subcontractor had a lump sum multimillion dollar contract. A “no damages for delay” in the contract stated that the Subcontractor recognized the potential for its Work to be delayed by others and would not be compensated for any costs caused by such delay unless the project owner compensated the prime contractor for the same. The project got significantly behind schedule and the prime and owner settled a delay claim which included a new obligation for the prime to pay $250,000/per week liquidated damages if the project was not completed by the newly established deadline. To meet the new schedule the prime requested the subcontractor to increase its manpower. The subcontractor submitted a proposal with a cost increase of over a million dollars. No cost increase was approved for the accelerated work and the subcontractor eventually filed suit to recover. In its complaint, the subcontractor asserted its scope of work was materially and substantially changed by having to reschedule its work from the summer months to the winter months. Summary judgment was granted against the subcontractor (and affirmed on appeal) based on the applicability of the no damages for delay clause in the contract. The subcontractor Thermal Technologies, LLC v. Prime Contractor Industrial Constructors, Inc., 221 N.E.3d 8701 (Indiana 2023).
The original work plan had envisioned the subcontractor completing the pipe portion of the Project across a four-month period in the spring and summer of 2019. The prime contractor’s directive for the pipe insulation to be finished by the end of January 2020 meant the subcontractor had to complete the majority of its work in less than two months during winter conditions on Lake Michigan’s shoreline. Over $1.6 million of the subcontractor’s claim was comprised of a claim for ‘changed conditions, schedule overrun, delays in work releases, and other impacts described in the Complaint’ and as defined in the Subcontract.
To avoid the application of the “no damages for delay” clause, the subcontractor characterized its delay claim as an acceleration of its own work schedule based on the prime contractor’s instruction to “increase manpower” or ‘accelerate’ its schedule in a meeting in December 2019. The subcontractor maintains that during this meeting Prime Contractor directed the subcontractor to increase manpower to complete its work by the end of January 2020, thereby compressing the schedule and accelerating the pace at which Prime Contractor was requesting the subcontractor to complete its work. The subcontractor argued that because other aspects of the project had encountered delays, it was required to complete its work faster in order to comply with the new deadline. “As such, the subcontractor argues that ‘[t]he impacts that the subcontractor has claimed on this Project are not damages for ‘delay’ at all but rather damages which were incurred due to Prime Contractor-directed change to the subcontractor’s work and the adverse impacts incurred due first to Prime Contractor’s ‘disruption’ and then to Prime Contractor’s ‘acceleration.’”
Further, the subcontractor argued that because Prime Contractor moved the subcontractor’s portion of the Project work to the winter months, the additional costs which it now claims derived from “productivity impacts resulting from a variety of causes but predominantly winter weather, absenteeism, low morale, and worker fatigue stemming from being directed to work at a break-neck pace from December 2019 until the finish.”
“While we can support a distinction between delay and acceleration under certain circumstances, it would seem that in many cases, if not in most cases, the alleged ‘acceleration’ is in fact the result of ‘delay,’ or, to put it differently, because of delay caused by or attributable to the owner or a contractor, a contractor or subcontractor is of necessity forced to compress or speed up the work necessary to be completed before the contract completion date. Here, the time compression that caused the acceleration of the subcontractor’s work was itself caused by delay in the work of predecessor trades. Because the early stages of the Project were not completed as expeditiously as planned by other contractors, the subcontractor’s work could not commence until later than expected. Thus, The subcontractor was delayed and thereby forced to accelerate the pace at which it performed its work in order to meet the Project’s deadline. Because the subcontractor’s ‘acceleration’ costs were the result of delay, and delay damages are not recoverable under the unambiguous terms of Article 8.8 of the Subcontract, The subcontractor’s claim must fail. Pursuant to the provision, the only recovery the subcontractor is entitled to in case of delay is an extension of time; however, no party designated evidence that the subcontractor requested Prime Contractor for a time extension at any point during the course of the Project.”
The subcontractor argued that disregarding the specific character of the damages sought, the contractual language embedded in Article 5 “’reserves the right to the contractor to make changes to the work’ and, in turn, entitles a subcontractor to seek an adjustment in the contract price when the contractor changes the scope of the work or the conditions under which the work is to be performed.” The subcontractor argued that the prime contractor’s directive to increase its manpower and work overtime to complete it work within the agreed upon project completion date constituted a “change to the work” thereby entitling the subcontractor to compensation.
“Regardless as to whether Prime Contractor’s request amounts to a change, as contemplated within Article 5, Subsection 5.1 clearly provides that “[t]he Subcontractor will not proceed with furnishing or providing any Changes without receiving, in advance, the Contractor’s written authorization to perform the Changes.” The subcontractor conceded that no such signed change order has been designated before this court …. “Mindful of the clear and unambiguous terms of Article 8.8 of the Subcontract which prohibits damages for delay, the subcontractor’s claim against Prime Contractor, in the absence of any designated evidence indicating that [project owner] reimbursed Prime Contractor for delay damages, fails.”
Comment: A “no damages for delay” clause in a subcontract is quite common. It permits a subcontractor to recover only a time extension but deprives the subcontractor of additional compensation to recover extra costs incurred during the delay. This particular decision, however, goes beyond what I see as the typical bar against paying additional compensation. Where a prime contractor specifically requests or demands that its subcontractor accelerate its work or requires the work to be performed during bad weather winter months instead of the planned summer months, these costs seem like they should be compensated under a change order. And where a change order is not granted, it seems a jury should be allowed to decide the merits of the case instead of having a court grant a summary judgment. I am only providing this as a general observation. I was not involved in this case and don’t have any facts on which to really question the court’s decision here.
About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk Report, Vol. 26, No. 3 (March 2024).
Copyright 2024, ConstructionRisk, LLC
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