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Can a Surety Benefit from a “No Damages for Delay” Clause in a Bonded Construction Contract?

“No damages for delay” clauses are frequently inserted into contracts between owners and contractors as well as those between contractors and subcontractors, either directly or through flow down and incorporation by reference clauses. A no damages for delay clause is generally enforceable in Florida, unless the party seeking to enforce it is guilty of fraud, bad faith or active interference with the work of the party impacted by the delay.

As part of basic suretyship law, the surety of the contractor steps into the shoes of the contractor and has all the defenses the contractor would have to a delay claim, including asserting the no damages for delay clause.  However, to be enforceable, the defense of a no damage for delay clause must comply with the Miller Act, and as one district court noted, the availability of a no damages for delay defense for a surety is a field of law that is rapidly evolving.

In United States for Use and Benefit of McCullough Plumbing, Inc. v. Halbert Construction Company, Inc., (Halbert) an issue arose as to whether a no damage for delay clause is void if it fails to comply with the rights and responsibilities created under the Miller Act.

It has been held that increased out-of-pocket costs caused by construction delays falls within the intended coverage of the Miller Act, and a subcontractor would have the right to recover these costs from a Miller Act Surety.  The Act provides a right to bring a civil action on the payment bond for the amount unpaid, and it has specific provisions dictating when this right may be deemed waived.

The Halbert court reasoned that permitting the surety to use the no damage for delay clause to preclude recovery from the Miller Act bond is, in effect, enforcing the provision as an implied waiver of rights under the Miller Act and would effectively contradict the express terms of the Miller Act and preclude Miller Act liability.

The Miller Act requires any waiver of rights to be in writing; signed by the person whose right is waived; executed after the person whose right is waived has furnished labor or material for use in the performance of the contract; and clear and explicit. For these reasons, the court ultimately held that the no damage for delay clause was void because it did not comply with the rights and responsibilities created under the Miller Act. The surety for the Miller Act bond, therefore, could not rely on the no damage for delay provision as a defense under these circumstances.

This begs the question: Will a Florida state court enforce a subcontractor claim that includes added costs incurred for contractor caused delays against a payment bond issued by the contractor’s surety? Section 255.05, Florida Statutes, has been adopted in Florida and is the state’s equivalent of the Miller Act Bond – it is even called the “Little Miller Act.” The logic of the court in McCullough Plumbing, Inc. v. Halbert Construction Company, Inc. would seem persuasive authority that even though the contractor has the no damage for delay defense, the surety may not because it would constitute an impermissible waiver of rights provided in Florida’s little Miller Act bond.

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