Beware the “Killer Clauses”: 5 Construction Contract Provisions That Can Derail Your Project
Construction contracts are dense, detailed, and often packed with legal landmines that can create serious problems if left unchecked. Among the most dangerous are so-called “killer clauses” — contractual terms that can shift liability, limit remedies, or create substantial financial risk for one party, often without them even realizing it.
This article breaks down five of the most notorious killer clauses in construction contracts and explains how to spot, negotiate, or avoid them to protect your interests.
1. No Damages for Delay (NDD) Clauses: Time, But No Money
What It Means: An NDD clause protects the owner (and sometimes the general contractor) from paying financial damages to a contractor or subcontractor for project delays — even when the delay is the owner's fault. These clauses typically limit the contractor’s remedy to a time extension only.
Why It’s Dangerous: Subcontractors subject to these clauses have no claim for loss of profit, increased expenses, or any damages tied to temporary or permanent delays. Even if the subcontractor is entirely blameless, they’re only entitled to more time — not compensation.
Enforceability: Most courts uphold NDD clauses. However, they may be unenforceable if the delay was caused by:
- Bad faith
- Active interference by the owner
- Willful misconduct
- Gross negligence
- Unreasonable length of delay
Tip: When reviewing an NDD clause, subcontractors should determine whether they will be entitled to compensation under any circumstance and ensure the general contractor is obligated to pass through any delay-related recoveries from the owner.
2. Broad Indemnification Clauses: One-Way Street to Liability
What It Means: Indemnification clauses are intended to shift risk from one party to another. A broadly worded indemnity clause might require a contractor or subcontractor to cover legal costs or damages for incidents even when the owner is partially or wholly at fault.
Why It’s Dangerous: If not carefully worded, these clauses can make an owner or contractor liable for injuries or damages they didn’t cause — including the negligence of the indemnifying party. For example, if a subcontractor’s crane injures someone, a broad indemnity clause could force the owner to bear the cost.
Key Considerations:
- Clarity: Courts will scrutinize vague or ambiguous clauses and may refuse to enforce them.
- Public Policy: Some jurisdictions limit the enforceability of indemnity clauses that shift liability for one party’s own negligence.
Tip: Be specific. Clearly define whose negligence or misconduct the indemnity applies to, and ensure the clause doesn’t obligate you to cover risks your insurance won’t protect against.
3. Ambiguous Pay-if-Paid / Pay-When-Paid Clauses: Cash Flow Confusion
What It Means: These clauses delay or condition payment to subcontractors based on the general contractor receiving payment from the owner. The two clauses are similar but legally distinct:
- Pay-When-Paid: Delays payment but doesn’t absolve the general contractor from paying eventually.
- Pay-If-Paid: Makes payment to the subcontractor conditional on the contractor receiving payment from the owner — potentially leaving the subcontractor unpaid indefinitely.
Why It’s Dangerous: If the general contractor never gets paid, subcontractors may never see a dime — and that can lead to liens, lawsuits, and project delays.
Legal Pitfalls:
- Many states do not enforce "pay-if-paid" clauses, especially if they conflict with mechanics’ lien or bond rights.
- Courts tend to enforce “pay-when-paid” clauses only as reasonable payment timing mechanisms — not as a permanent bar to payment.
Tip: Contractors and subs should review state law and demand clear language. Avoid language that makes payment to subcontractors entirely contingent on owner payment.
4. Liquidated Damages: Reasonable Estimate or Unenforceable Penalty?
What It Means: A liquidated damages (LD) clause sets a predetermined amount of money that the contractor must pay for each day the project is delayed beyond the agreed completion date.
Why It’s Dangerous: While LDs provide certainty and avoid litigation over actual damages, if the amount isn’t a reasonable forecast of expected loss, courts may view it as a penalty — and refuse to enforce it.
Common Issues:
- LDs are usually tied to “substantial completion,” so delays after this point may not trigger damages.
- If both parties share responsibility for the delay, the owner might lose the right to collect LDs altogether.
Tip: The LD amount must reflect a realistic estimate of the owner’s actual losses from delay. Avoid excessive figures that are punitive rather than compensatory.
5. Unexpected Changes in Site Conditions: A Hidden Cost Trap
What It Means: These clauses address the risk of “differing site conditions” (DSCs) — hidden physical conditions that differ materially from those anticipated in the contract. Examples include unexpected subsurface rock, soil conditions, or buried debris.
Why It’s Dangerous: If the contract lacks a DSC clause or if the clause is poorly drafted, the contractor could bear the full cost and time burden of unexpected site surprises — even when they couldn’t have been reasonably foreseen.
Entitlement: Just discovering unexpected conditions doesn’t automatically entitle a contractor to more money or time. Recovery hinges on:
- Having a DSC clause in the contract
- Promptly notifying the owner
- Proving that the condition differs materially from expectations
Tip: Ensure the contract contains a clearly worded DSC clause, defines procedures for notification and pricing, and distinguishes between known risks and unforeseen hazards.
Final Thoughts: Read the Fine Print — and Then Read It Again
Construction contracts are filled with provisions that can dramatically shift risk and affect project outcomes. The “killer clauses” above are among the most impactful — and most commonly overlooked.
Whether you're an owner, contractor, or subcontractor, proactive contract review and negotiation are your best defense. Know your rights, understand your obligations, and never assume a clause is “just boilerplate.”
If in doubt, consult your legal counsel at Lamson, Dugan,& Murray before signing — not after the trouble begins.
