The Illinois Appellate Court Enforces ‘No Damages for Delay’ Clause Against Subcontractor

In a recent decision, the Illinois Appellate Court held that a subcontractor was barred from invoking exceptions to a “no damages for delay” clause because the project delays were deemed reasonably foreseeable, and the subcontractor had notice of the schedule changes and chose not to negotiate different terms.  Furthermore, the parole evidence rule did not bar the court from examining extrinsic evidence in interpreting the subcontract agreement because evidence of delays and schedule changes did not vary or modify the subcontract’s terms, but rather clarified an ambiguity in the contract.

In Asset Recovery Contracting, L.L.C. v. Walsh Constr. Co. of Ill., No. 1-10-1226 (Ill. App. Ct. Nov. 1, 2012), Asset Recovery Contracting (ARC), a subcontractor hired to perform demolition work for the multimillion dollar redevelopment of the Palmolive Building at 919 North Michigan Avenue, Chicago, appealed, among other things, the trial court’s findings that (1) ARC could not recover damages for delays pursuant to the “no damages for delay” clause, and (2) the court could consider extrinsic documents and circumstances in interpreting the subcontract agreement.

ARC’s subcontract with Walsh contained a “no damage for delay” clause.  Illinois courts will enforce such clauses but also recognize the following exceptions to such clauses: delay caused by ‘bad faith,’ delay ‘not within contemplation of the parties,’ delay of ‘unreasonable duration,’ and delay attributable to ‘inexcusable ignorance or incompetence of engineer.’  ARC argued that the trial court erred in failing to apply two exceptions:  (1) the delays were not within contemplation of the parties, and (2) the delays were of unreasonable duration.

The Appellate Court applied the reasonable foreseeability test and determined the delays were reasonably foreseeable.  The various delays were well known to ARC prior to ARC’s execution of the subcontract.

The second exception – delay was of ‘unreasonable duration’ – also did not apply.  The schedule changes were found to be a reasonable delay because ARC had notice of the schedule changes, as well as an opportunity to negotiate different terms, but failed to do so.  The court also considered that ARC, by its conduct in continuing to perform and submitting requests for increased costs, waived any argument that the delays were of unreasonable duration.  The court noted that the mere length of the delay, by itself, does not establish unreasonable delay.

ARC’s second claim was that the trial court erred in considering extrinsic evidence in:  (1) interpreting the operative date of the subcontract agreement; (2) the schedule for performance of ARC’s work under the agreement, and (3) concluding that ARC considered the changes to the schedule reasonable.  The parole evidence rule precludes evidence of understandings not reflected in the contract, reached before or at the time of its execution, that would vary or modify its terms.

The trial court did err in considering extrinsic evidence in its interpretation of the operative date.  The subcontract clearly stated at the top face of the subcontract agreement, “Date of Agreement:  September 12, 2003.”  The subcontract also contained a certification clause.  The date on the contract of September 12, 2003 was one of the terms of the contract which ARC was certifying it was aware of.  The general contractor also certified this was the effective date of the contract when it executed the subcontract on May 4, 2004.  Thus, any parole evidence regarding the effective date of the contract should not have been considered.

The trial court’s decision to review extrinsic evidence to assess the schedule for performance of ARC’s work and ARC’s consideration of schedule changes was not in error.  The contract contained all essential terms and an integration clause.  The subcontract provisions specifically provided for changes to the work schedule.  The contract was, however, facially ambiguous regarding whether the schedule was firm.  To resolve this ambiguity, the court examined extrinsic evidence regarding whether ARC considered the changes reasonable ‘at the time the contract was made.’  At the time of ARC’s execution of the contract, ARC knew of all the delays, yet did not request a modification to the subcontract allowing for delay damages.  Instead, ARC executed the subcontract and proceeded with its work thereunder.  This extrinsic evidence did not vary or modify the subcontract’s terms.  Thus, the parole evidence rule did not apply to exclude such evidence under the subcontract.

This Blog is made available by Laurie & Brennan, LLP for general educational purposes only. The purpose of the Blog is not to provide specific legal advice on any particular matter. By using this Blog site you understand that there is no attorney client relationship between you and this firm and the authors or members of the firm. This Blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. Under rules applicable to the professional conduct of attorneys in various jurisdictions, the material on this Blog may be considered advertising material.