U.S. Court of Appeals for Sixth Circuit Holds Ohio Statute Precludes Application of “No Damage for Delay” Clause

Acme Contracting, Ltd. v. Toltest, Inc.
2010 U.S. App. LEXIS 6144 (6th Cir. Mar. 24, 2010)

The Court of Appeals for the Sixth Circuit affirmed a District Court decision that a “no damage for delay” clause was void and unenforceable pursuant to Section 4113.62 of the Ohio Revised Code. The clause contained provisions requiring that any “delay must be reported in writing and an extension of time shall be the sole and exclusive remedy of Contractor for any such delays or suspensions, but only to the extent that a time extension is obtained from the Owner,” and that “no claims will be accepted for costs incurred due to delays caused by others except to the extent that such delays exceed four (4) months.”

In April 2006, Toltest, Inc. entered into a contract with Whiting-Turner Contracting Co. to conduct hazardous waste abatement and demolition of buildings owned by the Georgia Institute of Technology. Toltest then subcontracted the portions of the contract involving demolition and related site work to Acme Contracting, Ltd. The agreement was executed in the form of a Purchase Order in June 2006.

In February 2007, Acme initiated an action against Toltest and others asserting claims for breach of contract and quantum meruit. Specifically, Acme alleged that Toltest caused multiple delays to Acme’s demolition work and failed to pay Acme for additional work outside its original scope. Acme asserted that Toltest failed to perform the required abatement work on the buildings in accordance with its own work plan, thereby delaying Acme’s demolition work and causing Acme to suffer damages.

The District Court found that Acme had established it was entitled to total damages in the amount of $2,033,756.02, including $1,088,715.15 in delay damages. Toltest timely appealed. It asserted that the District Court committed a number of errors. Among them, Toltest argued that the District Court erred in concluding that Ohio statutory law barred enforcement of the terms of the agreement that limited delay damages.

The Court of Appeals determined that the District Court properly applied Ohio’s statute prohibiting “no damage for delay” clauses when the cause of the delay results from the action or inaction of the contractor.

Toltest argued that its notice and approval requirement and prohibition of recovery of damages for delays less than four months “merely define[d] the circumstances under which delay damages [were] recoverable.” The District Court and the Court of Appeals disagreed. Citing Cleveland Construction, Inc. v. Ohio Public Employees Retirement System, the District Court found that provisions limiting the remedy for delay to an extension of time, requiring written notice and approval from the owner for any time extension, and allowing claims for costs incurred as a result of delays caused by others only if the delays exceeded four months, when considered together, operated to insulate Toltest from any liability for delays it caused. Therefore, the limitations were void and unenforceable as against public policy under Ohio Revised Code § 4113.62 (C) (2).

Click here to view full text of decision courtesy of LexisNexis.

This entry was posted in Breach of Contract, Subcontract and tagged , , , , . Bookmark the permalink.