It is common for construction contracts to state that, if the project is delayed by the owner, the contractor shall be entitled to an extension of contract time but will not be entitled to any addition compensation. Such a contract provision is known as a “no damages for delay” clause. The Connecticut Supreme Court has held that “‘no damages for delay’ clauses are generally valid and enforceable and are not contrary to public policy. [unless]: (1) [the] delays [are] caused by the [owner’s] bad faith or its willful, malicious, or grossly negligent conduct, (2) [the delays] uncontemplated …, (3) [the] delays so unreasonable that they constitute an intentional abandonment of the contract …, and (4) [the] delays [result] from the [owner’s] breach of a fundamental obligation of the contract. White Oak Corp. v. Department of Transp., 217 Conn. 281, 288-89, 585 A.2d 1199, 1203 (Conn.,1991). The list of exceptions; however, may not actually be that broad. In a recent decision, the Superior Court analyzed the applicability of the aforesaid exceptions to a typical “no damages for delay” clause.
In C & H Elec., Inc. v. Town of Bethel, an electrical contractor was substantially delayed because of the additional asbestos abatement work that was required.
It is readily apparent that – if a project is delayed – the contractor is losing money. The increased direct costs associated with the labor and equipment on site are obvious. The more complex question arises when considering the effect a delayed project has on a contractor’s recovery of its home office overhead, where “home office overhead” is defined as the cost of the contractor’s main office including, but not limited to, rent, utilities, executive and management salaries, staff, office equipment, office supplies, taxes, insurance, etc. Everyone intuitively understands that a delayed project increases such costs in the same manner that that delays increase the project’s direct costs but increases in home office overhead cannot be directly correlated to any one project because a contractor typically has several projects with overlapping schedules underway at any given time. Over the years, courts have attempted to determine the damages necessary “to compensate a contractor for its indirect costs that cannot be allocated to a particular contract for the period during which the government has made contractual performance impossible.” Charles G. Williams Constr., Inc. v. White, 326 F.3d 1376, 1380-1381 (Fed. Cir. 2003). “As a result, there are at least nine formulas that have been used,