By Jon Straw
On a design-build project for the Maryland State Highway Administration (MdSHA), a contractor submitted claims for delay and acceleration due to utility relocations by third-parties. MdSHA, the Maryland Board of Contract Appeals, and the trial court denied the claims. The Court of Special Appeals of Maryland affirmed the claim denials but reversed on whether the contractor was entitled to a time extension for excusable, but non-compensable delays. Allan Myers MD, Inc., Court of Special Appeals of Maryland, Case No. 0862 (Aug. 24, 2022).
The Project required relocation of several overhead and underground utilities within the right of way. Some third-parties took an extra three months to relocate their utilities. Liquidated damages for late completion were set at over $4,000 per day. The contractor submitted a claim for delays seeking a 187-time extension and time-related costs for the same. The contractor submitted a separate claim for acceleration seeking its costs to speed up performance striving to meet the completion deadlines.
One problem for the contractor was a contract provision that waived damages for delay – a No-Damages-for-Delay (ND4D) provision, stating “[i]t is understood and agreed that . . . no additional compensation will be allowed for delays, inconvenience, or damages sustained by [contractor] due to any interference from the said utility appurtenances or the operation of moving them.”
Under Maryland law, ND4D clauses are enforceable unless there is intentional wrongdoing, gross negligence, fraud, or misrepresentation by the public agency. Although it was undisputed that the utility relocation was delayed and without the contractor’s fault, the ND4D clause precluded the contractor’s recovery of compensation for delays since none of the exceptions applied. The contractor could not recover its time-related costs, such as, extended site overhead and home office overhead.
The appellate court reasoned that ND4D clauses are intended to protect the public interest “against the vexatious litigation based on claims, real or fancied, that the agency has been responsible for unreasonable delays.” Regardless of whether litigation is truly “vexatious,” the goal of ND4D clauses is like other restrictions (e.g., sovereign immunity) of claims against public entities – better management of public resources. (A thought for another day is the disparate treatment of ND4D clauses depending on the contracting tier. ND4D clauses are more often enforced by courts when public entities use them defensively against prime contractors than when prime contractors use them defensively against subcontractors or subcontractors against lower tiers.)
In this case, thankfully, the appellate court reversed and remanded the lower court’s summary determination that because the contractor could not recover time-related costs. It was also not entitled to a time extension and relief from liquidated damages. This ND4D clause did not necessarily also preclude a time extension and release of liquidated damages to the contractor.
In addition to its delay claim, the contractor also submitted a claim for acceleration. In an unrelated case, an Illinois court succinctly described delay vs. acceleration as “opposite sides of the same coin [that] are frequently and inappropriately interchanged.” (Contracting & Material Co. v. City of Chicago, 20 Ill. App. 3d 684 (1974)). Delays occur when progress slows down. Acceleration occurs when progress speeds up. Delay damages are the same costs as without delays, but simply incurred for a longer time period. Acceleration costs are extra costs incurred to increase progress while striving for the same deadline or shorter time. The distinction between delay and acceleration can depend upon the contract provisions and types of costs sought to be recovered. Successful recovery can also depend upon where the case is decided. There is not a majority opinion as most states resolve any distinctions on a case-by-case basis. Here, the contractor’s acceleration claim was denied because the contract clause waived damages for “inconvenience . . . due to any interference” from utilities.
Finally, in addition to analyzing your contract provision(s), consider how the courts or any applicable statutes in your jurisdiction seemingly (dis)favor damages for delays or acceleration. Some statutes seemingly lean towards enforcement just by the way they are written (e.g. A, “ND4D clauses are enforceable unless . . .”). Other statutes seem critical of ND4D clauses (e.g. B, “ND4D clauses are unenforceable unless . . .”). Enforcement of ND4D clauses should be more likely in a jurisdiction with a statute or case law like example A than example B. Overcoming a ND4D clause in a jurisdiction with example A will likely be an uphill battle from the beginning. R&B