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In Luse Thermal Technologies, Inc. v. Graycor Industrial Contractors, Inc., 221 N.E.3d 701 (Ind. Ct. App. 2023), the Indiana Court of Appeals held a “no damages for delay” contractual clause barred a subcontractor from recovering damages when it accelerated its own work to account for delay caused by others.

On May 17, 2018, BP entered into a Master Services Agreement with Graycor Industrial Contractors, Inc. (“Graycor”) for construction of a Naptha Hydrotreater system (“NHT”) at BP’s plant in Whiting, Indiana (“the Project”).  On the same day, Graycor entered into a multi-million dollar subcontract with Luse Thermal Technologies, Inc. (“Luse”) for the insulation and lagging work of the Project.

The subcontract between Graycor and Luse contained a “no damages for delay” provision that stated Luse recognized the potential for its work to be delayed by others and that it would not be compensated for any costs caused by such delay.  Although the subcontract was not accompanied by a project schedule, substantial completion was set to be achieved by August 22, 2019.  The project experienced a significant number of delays, resulting in a number of project deadlines being pushed back.

Graycor and BP settled a delay claim in December, 2019, which included a newly established deadline of January 31, 2020.  As a result, Graycor requested Luse to increase its manpower.  While the original work plan had envisioned Luse completing its work across a four-month span in the summer months, the new deadlines required Luse to complete the majority of its work in less than two months during winter conditions.    Luse submitted a revised proposal with a cost increase of over $1 million, but Graycor never agreed to Luse’s revised cost proposal.  Luse filed suit to recover its increased costs, which was primarily comprised of a claim for “changed conditions, schedule overrun, delays in work releases and other impacts.”

Luse characterized its delay claim as an acceleration of its own work schedule based on Graycor’s directives as an attempt to avoid the “no damages for delay” clause in the subcontract.  Luse maintained Graycor had directed it to increase manpower to complete its work, compress the schedule and accelerate the pace at which Luse was to complete its work.  Luse argued that because Graycor moved its portion of the Project to the winter months rather than summer, there were additional costs derived from “productivity impacts” resulting from winter weather, absenteeism, low morale, and worker fatigue.

The Court held that while it could support a distinction between “delay” and “acceleration” under certain circumstances, acceleration was most of often the result of delay.  The Court found, in this circumstance, the time compression that caused the acceleration of Luse’s work was itself caused by delay in the work of predecessor trades.  Thus, Luse was delayed and forced to accelerate.  The Court held that because Luse’s acceleration causes were the result of delay, and delay damages were specifically not recoverable under the terms of the subcontract, Luse’s claim failed.

Luse also argued that, disregarding the specific character of the damages sought, certain contractual language allowed a subcontractor to seek adjustment in the contract price when the scope of work or conditions under which the work is to be performed are changed.  Luse argued Graycor’s directive to increase manpower and work overtime to complete the work constituted a “change to the work” that entitled Luse to compensation.  However, the subcontract also contained a provision that “the Subcontractor will not proceed with furnishing or providing any Changes without receiving, in advance, the Contractor’s written authorization to perform the changes.”  Luse conceded no change order was ever signed.  Thus, the Court held that Luse’s argument for compensation in this regard also failed.

“No damages for delay” clauses are not uncommon in subcontracts and typically permit a subcontractor to recover only a time extension, but deprives them of additional compensation for costs incurred during the delay.  However, in this circumstance, Luse would have been entitled to compensation had it received an executed change order from Graycor.  We would caution contractors to protect themselves against substantial damages such as this by ensuring change orders are approved before proceeding with changed scopes of work, timelines or working conditions.