New Jersey’s “No Damages for Delay” and Negligence of Third Parties
“No damages for delay” provisions are a universal component of construction contracts on public projects. Generally imposed by public entities in an attempt to limit their exposure, “no damages for delay” provisions operate to preclude a contractor from receiving compensation or an equitable adjustment to the contract value solely because of delays on the project. Oftentimes, within these provisions, the sole remedy afforded to the contractor is additional time, but not additional compensation. These provisions should be carefully considered as they can leave the contractor on the hook for all additional costs incurred as a result of delays, regardless of the public entity’s responsibility for them.
It is generally suggested by counsel to avoid using the word “delay” in situations where the project time has been extended due to owner-related issues, and instead, use “extended time for performance.” This language assists in limiting the application of the “no damages for delay” clause when the project was extended and not delayed. A “delay” is a period of time when, due to an issue, no work can be performed. On the other hand, during an “extended time for performance,” work can be performed, but it may be only non-critical activities. In addition, there is no demobilization. The damage here is that the contractor’s time for performance is extended, not delayed.
New Jersey Law
The law in New Jersey previously included a contractor’s right to avoid “no damages for delay” clauses if the delay was caused by an owner’s bad faith or active interference. To bring more equity to this type of contractual provision, the New Jersey legislature enacted a law declaring “no damages for delay” provisions in public contracts void as a matter of public policy. The statute provides:
A covenant, promise, agreement or understanding in…a contract…to which a public entity is a party, relative to the construction, alteration, repair, maintenance, servicing or security of a building, structure, highway, roadway, railroad, appurtenance and appliance…purporting to limit a contractor’s remedy for delayed performance caused by the public entity’s negligence, bad faith, active interference, or other tortious conduct to an extension of time for performance under the contract, is against public policy and is void and unenforceable. N.J.S.A. § 2A:58B-3(b).
In effect, the statute expands the ability to attack “no damages for delay” clauses to include negligence as a basis, providing a much wider berth for contractors to avoid such clauses. However, there are still bounds. A significant caveat in this protection is that the cause of the delays must be the public entity’s negligence—it cannot be due to the negligence of a consultant or other third party (such as a utility company) that was engaged by the public entity.
Most Recent Case Interpreting the Law
In City of Perth Amboy v. Interstate Industrial Corp., the New Jersey Appellate Division ruled that for purposes of N.J.S.A. § 2A:58B-3(b), the negligence of others will not be imputed to the public entity. The Appellate Division held that “the Legislature never intended that contractor’s remedies could be broadened by imputing the negligence of others to the [public entity].” The defendants in this case were unsuccessful in voiding a “no damages for delays” provision because the delays were caused by the architect hired by the public entity, not the public entity itself. The court found that because the architect was not a public entity and was not part of the public entity, the “no damages for delay” provision was not void and was enforceable.
Attorneys and contractors should be aware of these developments when assessing or negotiating public contracts in New Jersey. After a project with a “no damages for delay” provision has been completed but suffered significant delays, the contractors must consider the mechanics of the statute when determining which entities are necessary parties in a lawsuit. This is especially important on projects where the public entity was not the party at-fault for the delays because the public entity will be permitted to rely upon the “no damages for delay” provision in precluding any monetary damages. The contractor must then consider the causes of action that can be brought against the responsible party, as well as the procedural prerequisites imposed on such causes of action. In the case of professional malpractice claims, litigants must satisfy New Jersey’s Affidavit of Merit Statute, N.J.S.A. § 2A:53B-27 et seq. As such, the contractor must assess the cost of bringing such a lawsuit and determine if “the juice is worth the squeeze.”
After the Appellate Division’s ruling in City of Perth Amboy, there has been no case further interpreting N.J.S.A. § 2A:58B-3(b). As such, City of Perth Amboy remains the sole case setting forth how N.J.S.A. § 2A:58B-3(b) is to be implemented in disputes against public entities with “no damages for delay” provisions. This decision presents a double-edged sword. On one side, the ruling confirms that “no damages for delay” provisions in public contracts are against public policy and are deemed void. However, on the other side, the ruling narrows the applicability of the negligence analysis to the public entity and only the public entity. Even though a contractor has no control over the consultants hired by a public entity (and may not even have direct contact with the consultant), for purposes of the negligence provision of N.J.S.A. § 2A:58B-3(b), that consultant is treated as a completely distinct entity. Thus, in light of the recent developments, it is imperative for contractors to adequately identify the causes of delays prior to bringing a claim against a public entity.