Prohibition on Delay Damages Enforced Absent Bad Faith, Willful Misconduct or Gross Negligence

On July 30, 2015, the Third Department issued a decision in Tougher Industries, Inc. v. Dormitory Authority of the State of N.Y., 2015 NY Slip Op. 06388, enforcing a prohibition on the award of delay damages in a construction contract.

In Tougher Industries, the "plaintiff contracted with defendant to be the prime contractor in charge of installation of heat, ventilation and air conditioning (hereinafter HVAC) during a major renovation project at a state psychiatric center. Plaintiff's completion of the work was significantly delayed by a multitude of design errors and other issues. As a result," the plaintiff brought an action "asserting breach of contract and several other causes of action." The trial court granted the defendant summary judgment on the plaintiff's delay damages claim, which the Third Department affirmed, explaining:

As a general rule, contract clauses exculpating the contractee from liability to the contractor for damages resulting from delays in performance of the contract work are valid and enforceable. However, even where the contract contains such a clause, there are several recognized exceptions. As relevant here, a contractor may still recover for delays caused by the contractee's bad faith or its willful, malicious, or grossly negligent conduct. A defendant seeking summary judgment dismissing a claim for delay damages bears the initial burden of demonstrating prima facie that none of the exceptions to the damages for delay clause are present.

(Internal quotations and citations omitted) (emphasis added). The Third Department agreed with the trial court that the defendant had made such a showing and that the plaintiff had not rebutted it.