When is Owner Interference Intentional?

The no-damage-for-delay disclaimer is not as enforceable as it used to be. Perceived as a one-sided term of adhesion, imposed by project owners from a position of superior bargaining power, these clauses have been assailed in the legislatures and the courts. There are now a number of limitations and exceptions when it comes to enforcing delay damage disclaimers.

One of the most widely recognized exceptions to enforceability is “intentional interference.” If the project owner intentionally hinders the contractor’s work, the owner cannot rely on the disclaimer of delay damages. This issue arose recently when a seemingly ironclad clause could not be enforced until the owner refuted the contractor’s allegation of intentional interference. But there is a problem: the term “intentional” is vague and ill-defined.

Some courts have said that in order to be intentional, the interference must result from something more than owner negligence. It must result from an affirmative act. This is a start, but it hardly resolves the wide array of factual occurrences giving rise to construction delay.

Should no-damage-for-delay clauses be strictly enforced according to their plain language? If it is agreed that an owner cannot intentionally interfere with the contractor’s work and still invoke the disclaimer, what is the proper definition of intentional? Must the owner intend to delay the contractor? Or just take an affirmative step which has that result? And what about negligent mismanagement which delays the contractor?  As always, I invite your comments below.

Featured in next week's issue of Construction Claims Advisor:

• Pay-If-Paid Clause Not Negated by AIA Prime Contract
• Lost Productivity Award Upheld
• Use of Liquidated Damages Formula Upheld

Bruce Jervis, Editor
Construction Claims Advisor

Comments

[Scott Young]

Mr. Jervis,

It comes down to a contractor needing to be “vigilant” in documenting events. If detailed records are not kept, a contractor opens themselves up to abuses, such as an owner not paying for a delay, which in the majority of situations a contractor will more than likely lose. To mitigate or even avoid such situations (turn the situation into their favor) a good rule to live by is, “If it is not written down and sent to an owner (with some type of timestamp), it was never said!” In other words, once an owner is informed (made aware) of the potential costs associated to their lack of follow through or other changes, resulting in production delays, they will have a difficult time claiming ignorance (victimhood).

It is also a good idea (obviously) to have an attorney include a clause about an owner’s responsibility to respond in a timely manner, as well as for unforeseen existing conditions, within any construction contract, no matter how small the project is.

Thank you for this article,

Scott Young
Restore 2 Green®
Whittier, California

[Eric Davidson]

I can't count the number of A/E's and GC's that I've gotten out of litigation by convincing the Owner (after the fact) that its actions contributed to the circumstances that either created delays or caused errors to be built.

I also can't count the number of projects where I was not successful in persuading an Owner not to interfere with the governance of a project (before the fact).

Fortunately, I can count on just my right hand the number of times I've gotten taken off a project for doing one of the two above.

[Eden Milroy]

As an experienced GC, architect, and commercial building owner, I well understand the reasons why owners have used the “no damage for delay” clause. Contractor claims for delay have turned into one of the most abusive activities in the construction industry. Most owners and architects have experienced the deluge of RFI’s, substitution requests, change order requests, and other issues being raised which, without immediate response, will delay the project. Reaching the end of construction projects believing that everything has been paid for, only to find the GC submitting for delays which occurred at the beginning of the project is also a common experience.

Notwithstanding the above, I don’t believe the “no damage for delay” clause is the solution. Owners and architects really do create delays which may create unforeseen costs for the GC. A better solution is to spell out the management process of review and decision making in the contract. This should include such things as
- scheduling submissions
- defining business days for response
- requiring change order proposals to include costs for time, if any
- backcharging for architects time to review substitutions and RFI’s for
items clearly shown in the contract docs.

The contract is intended to create an orderly process. Too many GC’s try to game the system. The answer is to improve the system, not to create a blanket cover.

Eden Milroy, President
Pilot Development Partners, Inc.

[Thomas A. Zimmerman, FAIA, CCS, NCARB]

Thanx Eden. I think you have pretty well nailed it! Of equal importance is enforcement of the management procedures. All too often the parties let them slide and compound the probelm the procedures were meant to prevent.

[RUFRAN C. FRAGO]

Hi Bruce,

A contract, despite it's modern complexity is still a document of trust. We can put all the clauses into it to protect ourselves but mutual respect, business culture and the kind of relationships between all parties will generate the attitude that will ultimately govern and dictate the end result. Sad as it is, it is the truth of the matter. In my mind, it is not too different from a marriage contract. In today's world, people focuses too intensely on the instrument and fail. Good article. Excellent pointers from Eden Milroy. Cheers!