Public Contracts- What can be waived?

As a general contractor or subcontractor in the Commonwealth of Virginia (and likely other places as well) you likely have run into situations where the contract you sign with the owner or upstream contractor had a clause that waived your delay damages or limited your delay remedy to additions of time, but not money. These clauses are standard and even expected on commercial construction projects.

In Virginia, public construction projects are governed by the Virginia Public Procurement Act (the “Act”). Among other provisions, the Act includes language rendering contractual provisions barring damages for unreasonable delays void (the language can be found here). The Virginia Supreme Court recently clarified the application of this language on so called “no damages for delay” clauses in a recent opinion earlier this month.

In Martin Brothers Contractors, Inc. v. Virginia Military Institute, the court essentially confirmed that damages for unreasonable delay can be recovered by a contractor despite a waiver of such damages found in the contract itself. In summary, VMI delayed the renovation of a campus building by 270 days, admitted that VMI and not Martin Brothers or weather was the sole cause of the delay and that Martin Brothers had no fault in the delay. VMI relied on several contract provisions to limit their payment to Martin Brothers for the delay to approximately $99,000 out of around $246,000 in claimed delay damages. The contractual provisions (cited in the case linked above) essentially limited the markup on changes to the scope of work to 15% without mention of delay.

Citing the language from the Act, the Virginia Supreme Court held that while the Act does not keep the parties from determining how damages will be calculated, the clauses that were cited did not contain a calculation for how to determine delay damages and therefore were not exempt from the Act’s ban on “no damages for delay” clauses and sent the case back to trial to determine the proper measure of Martin Brothers’ damages for the delay.

What is to be learned from this case? Two points stand out. The first is that the Virginia Supreme Court will look to the actual language of the statute when determining how the statute and contract interact. This is the legal point. The practical point for contract drafting is to be careful when you write your damages provisions into a contract. One of the keys to the VMI case is the absence of contractual language on how to calculate delay damages. My interpretation of this case is that if the contract included a provision for the calculation of delay damages, that the parties would be bound by it. In short, the hole in the contract will likely cost VMI a significant amount of money.

Careful drafting of contracts is a theme here at Musings and should be one in your construction practice. Specificity in drafting is a must. As the above mentioned case clearly shows, one small omission can lead to one big judgment.

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