Houston – The Texas Supreme Court just issued a blockbuster opinion affirming the limited scope of no-damages for delay clauses.
Zachry Construction Corporation contracted with Port of Houston Authority to construct a concrete wharf. To meet the Port’s tight schedule, Zachry planned to use soil dredged from the channel to construct a frozen earthen berm, creating a wall separating the water in the channel from the site for the new wharf.
Nine months into the project, the Port determined that it needed to increase the size of the wharf. The Port executed a change order, increasing the size of the wharf and the contract amount. Zachry planned on using the same frozen earthen berm method to construct the added sections of the wharf. After the change order was signed, the Port directed Zachry to revise its plan because of their concern over the frozen method weakening the wharf’s existing piers. Zachry constructed the additional wharf sections in wet conditions and experienced significant delays.
Zachry sued the Port and secured a favorable judgment for significant delay damages. The Port appealed the award to the Court of Appeals, asserting that the no-damages-for-delay provision in the contract barred Zachry from recovering delay damages. The Court of Appeals agreed and reversed the trial court.
Today, the Texas Supreme Court reversed the Court of Appeals. The Court recognized the traditional exceptions to the enforcement of no-damages-for-delay clauses. These include an owner’s “active interference” with a contractor “or other wrongful conduct,” including “arbitrary and capricious acts.” The Court reasoned that the purpose of such exceptions is to “preclude a party from insulating himself from liability for his own deliberate, wrongful conduct.”
The Court also ruled the Port waived immunity from Zachry’s claim for delay damages.
No longer is there uncertainty about the applicability of the traditionally recognized exceptions to no damages clauses. Texas now falls in line with the majority of states.
Written by Bill Andrews and Tim Ross.