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“No Damages for Delay” Provisions Held Unenforceable
“No Damages for Delay” Provisions Held Unenforceable

Before 1991, so-called “No Money Damages for Delay” provisions (or more simply “No Damage for Delay” provisions) were completely enforceable in Virginia construction contracts, both private and public.  In other words, if a general contractor’s contract with an owner contained a provision stating that, if the project was delayed, even if the owner caused the delay, then the general contractor was entitled to only an extension of contract time and not to any monetary damages caused by the delay (such as extended overhead) -- such a “no damage for delay” provision was enforceable, and the general contractor bore the economic brunt of even owner-caused delay.

That changed in 1991, at least with respect to public contracts for construction of Virginia state projects, with the enactment of Virginia Code Section 2.2-4335, which voided any public/state construction contract provision barring recovery of damages for delays.  In the words of the 1991 statute, “[a]ny 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 . . . if and to the extent the delay is caused by acts or omissions of the public body, and due to causes within [the public body’s] control shall be void and unenforceable as against public policy.”  So, with the enactment of Code Section 2.2-4335 in 1991, contractors got some economic relief when the Commonwealth delayed the progress of a state project.

But Code Section 2.2-4335 voided “no damage for delay” provisions in state contracts only, leaving such contract clauses still enforceable in private, non-public, construction contracts.  But this also appeared to change in 2015, at least with respect to the rights of subcontractors, lower-tier subs, and material suppliers, with the enactment of Virginia Code Section 11-4.1:1.  That 2015 Code section provides that “[any] provision that waives or diminishes a subcontractor's, lower-tier subcontractor's, or material supplier's right to assert . . . claims for demonstrated additional costs in a contract executed prior to providing any labor, services, or materials is null and void” (our emphasis added). 

And even though Code Section 11-4.1:1 does not contain the word “delay,” courts interpreting the new statute read the words “additional costs in a contract” as including claims for delay damages, which under this interpretation became recoverable even if the contract said that they were not.  For example, a Maryland court interpreting the new Virginia law in 2017 ruled that, while a “no damage for delay” clause was enforceable in Virginia before the enactment of Virginia Code Section 11-4.1:1, such clauses were “unlikely to be enforceable” after 11-4.1:1 went into effect on July 1, 2015.

More recently, last November (Nov 2023), the U.S. federal district court sitting in Newport News agreed with the 2017 Maryland court, reasoning that “no damage for delay” clauses substantively and substantially diminish subcontractors’ rights in violation of Code Section 11-4.1:1.  The case is Strata Solar v. Fall Line Construction, in which lawyers from Hirschler Fleischer represented a subcontractor contending that “no damage for delay” provisions in its subcontract were rendered unenforceable by Code Section 11-4.1:1.  The Newport News federal court agreed with the subcontractor, ruling that “the express language of Section 11-4.1:1 [that] renders void any contract provision ‘that waives or diminishes . . .[a subcontractor’s] right to assert claims for demonstrated additional costs,’ [is] text that can only be read to encompass the [no damage for delay] clauses at issue here.”

The Strata Solar case from Newport News, while instructive, did not address the meaning of the somewhat cryptic words “claims for demonstrated additional costs in a contract in advance of furnishing any labor, services, or materials” found in Code Section 11-4.1:1.  (The second sentence of 11-4.1:1 uses the somewhat more clear words “in a contract executed prior to providing any labor, services, or materials . . . .”)  Some guidance on this unanswered question was provided in a Roanoke case from earlier year, BAE Systems v. Fluor, in which a subcontractor entered into a “Undefinitized Contract Action,” or “UCA” (essentially a letter of intent) with a general contractor for the design and construction of a new nitrocellulose production facility at the Radford Army Ammunition Plant in Radford, Virginia. 

The subcontractor began work under the UCA, including performing millions of dollars of extra work not specified by the original UCA but that was authorized by four modifications to the UCA.  Subsequently, the subcontractor and the GC entered into a more formal subcontract, which contained a monetary limit of $30M on claims for damages.  Still later, the subcontractor had to sue the GC for damages, including damages for work performed pursuant to the UCA and prior to the execution of the more formal subcontract.  The GC defended the claim, citing the $30M cap on damages.  The federal court in Roanoke, deciding the case pursuant to Virginia construction law, considered the effect of Code Section 11-4.1:1 on the sub’s claim and identified the issue as whether the subcontractor’s work done under the UCA should be considered work performed “prior to executing the Subcontract,” the implication being that if the UCA work was considered to be “labor, services, or material” provided before entering the Subcontract, then 11-4.1:1 would not apply and the limitation of damages provision in the formal subcontract would be enforceable.

The Roanoke court, after acknowledging that the subcontractor had performed at least $32M in labor, services, and material under the UCA (prior to execution of the subcontract), then engaged in some legal gymnastics and ruled that the work done by the sub under the UCA was not, as a legal matter at least, work done prior to the execution of the more formal subcontract, and ruled that the $30M cap on damages contained in the subcontract was unenforceable, despite Code Section 11-4.1:1.  (If it occurs to the reader that this ruling would appear to stand the notions of time and the chronological order of events on their respective heads -- then you are not alone, as the UCA work actually was performed during a period of time that chronologically preceded the execution of the more formal subcontract!)

The takeaway from the BAE case?  There is now some legal basis for taking the position that work performed and actions taken pursuant to a prior letter of intent will be legally governed by, and legally considered to have taken place after the execution of, a subsequent, more formal, construction subcontract.  And if the subsequent formal subcontract contains impermissible limitations on damages, including delay damages, then Code Section 11-4.1:1 will apply to allow recovery of damages regardless of when the associated work was performed.

These are complicated and often confusing legal issues.  Any member of your Hirschler Construction Team will welcome an opportunity to discuss with your team the current state of Virginia law regarding “no damage for delay” and limitations on recovery of economic damages.

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