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Commonwealth Court Affirms Award of Delay Damages to Government Contractor despite Contract’s “No Damages for Delay” Clause

The Commonwealth Court recently concluded that a contractor in a Pennsylvania public project can be entitled to delay damages, even if there is a “no damages for delay” clause in its contract, as long as the delay was caused by the government’s “active interference.” John Spearly Construction, Inc. v. Penns Valley School District, No. 2050 C.D. 2014, 2015 WL 4497726 (Pa. Commw. Ct. July 24, 2015).  The Commonwealth Court further concluded that the contractor’s failure to comply with the contract’s formal notice procedure was not fatal to its delay claim.  In Spearly, a school district entered into a contract with several contractors for the design and construction of a biomass boiler system. John Spearly Construction, Inc. was the contractor retained to construct the building that would house the boiler plant.  Spearly’s contract stated that an extension of the contract time shall be the sole remedy against the District or Architect for delays, “unless a delay is caused by the acts of [the District] constituting active interference, as defined under applicable law and subject to the limitations stated herein …”  It also defined “active interference” to exclude the following type of conduct: “[The District’s] exercise or failure to exercise any rights or remedies under the Contract Documents (including without limitation, order changes in the work, or directing suspension, rescheduling or correction of the work), regardless of the extent or frequency thereof, shall not be constructed as active interference with [Contractor’s] performance of the work.”

Under Pennsylvania law, a “no damages for delay” provision like this one is considered an exculpatory clause; subject to stringent standards in order to be enforceable. See Keystone Aeronautics Corp. v. R.J. Enstrom Corp., 499 F.2d 146 (3d Cir. 1974).  Thus, the party asserting it must prove, among other things, that the contract: (1) does not contravene public policy; and (2) relates solely to the private affairs of the contracting parties. See Valhal Corp. v. Sullivan Assocs., Inc., 44 F.3d 195 (3d Cir. 1995).  In Spearly, the Court refused to find that the District’s contract was only related to the “private affairs” of the contracting parties.  See also State Pub. Sch. Bldg. Auth. v. Goodea Constr. Co., 24 Pa. D. & C. 3d 648 (Pa. Com. Pl. 1981) (proper construction of public school buildings is a matter of interest to the public or state).  Therefore, the Court construed the contract against the District (i.e., the party seeking immunity) and held that delay damages were available to the contractor since the District delayed the issuance of several change orders.  The Commonwealth Court also held the District was properly attributed responsibility for the actions of “third-parties” where the District had control over the hiring and management of those third parties.  Specifically, a third-party contractor, whose work disturbed Spearly’s access to the work site, and the Architect’s lack of oversight was ultimately attributable to the District.  Finally, the Court concluded that Spearly was not barred from bringing its delay claims by its failure to adhere to the notice procedures for such claims required by the contract. The Commonwealth Court followed the United States Court of Federal Claims’ rationale that a narrow application of notice provisions is not appropriate where the government was aware of the delay.  See Hoel-Steffen Construction Co. v. United States, 456 F.2d 760 (Ct. Cl. 1972).  In light of this decision, contractors should look closely at the cause of any delay on the public construction project before concluding that a delay claim is barred by a “no damages for delay” clause.