For data center projects, the stakes are high. Tight schedules, massive capital outlays, and owner-driven scope changes are the norm. An owner who wants to limit delay exposure needs precise contract language. Boilerplate will not do the job. Contractors and owners need to understand the rules before they sign. They also should purchase broad Builder’s Risk insurance.

“No Damages for Delays” and Liquidated Damages Clauses

“No damages for delay” clauses are standard in construction contracts. Wyoming courts will not enforce them unless the language is precise. The Wyoming Supreme Court made that clear in City of Gillette v. Hladky Construction, Inc., 196 P.3d 184 (2008). The contract gave the contractor a time extension remedy for owner-caused delays. It said nothing about damages. The court held that the provision did not bar the con tractor from recovering monetary delay damages because it never stated that a time extension was the exclusive remedy. A clause that grants a time extension but stays silent on damages will not bar a delay claim. Wyoming courts will not imply a waiver: The waiver must be express.

Owners frequently include liquidated damages provisions in data center construction contracts. The appeal is obvious. Rather than litigating actual damages after a delay, the parties agree upfront on a per-day rate. But courts applying Wyoming law will not enforce a liquidated damages clause simply because the parties agreed to it. The clause must satisfy each of three prongs to be enforceable: (1) the injury caused by the breach is difficult or impossible to estimate accurately; (2) the parties intended to provide for damages, not a penalty; and (3) the stipulated amount is a reasonable pre-estimate of the prob able loss. See Jessen v. Jessen, 810 P.2d 987 (1991); Wolin v. Walker, 830 P.2d 429 (1992).

On the first factor, data centers present a compelling case: lost revenue from a delayed facility is genuinely difficult to quantify at contracting. Lease revenue, power sales, and hyperscaler service credits are hard to pin down at the time the contract is signed. That supports enforceability. But the second and third factors could pose issues for owners. A liquidated damages rate set too high relative to actual anticipated harm looks punitive. Courts applying Wyoming law will not enforce it. The rate must be grounded in a genuine pre-contract estimate of probable loss, not a number chosen to deter delay or shift all project risk to the contractor.

The cost of delay on a data center project can run to millions of dollars per week—reflecting lost revenue, increased financing costs, contractual penalties with end users, and operational disruption. Those costs bespeak serious exposure on both sides of the contract. For contractors, a liquidated damages clause at or near that rate could be existential on a multi-month delay. For owners, an unenforceable clause means litigating actual damages, which requires proving lost revenue, stranded financing, and customer-level harm.

These exposures require careful drafting at the front end and insurance planning that accounts for both scenarios. Indeed, the contractual delay damage framework does not operate in a vacuum. Most data center construction projects carry builder’s risk insurance, and sophisticated owners layer Business Interruption coverage on top of that. Wyoming’s geographic profile makes that coverage critical.

Builder's Risk Insurance

Most new data center construction is concentrated in or near Tornado Alley. Wyoming sits at the western edge of that corridor. Severe weather events can cause significant construction de lays and physical losses. Builder’s Risk insurance policies are essential to man aging the risks of unanticipated delays during construction. These policies are written either on an all-risks basis (provides coverage for all perils unless specifically excluded) or a named perils basis (covers causes of loss specifically named). Builder’s Risk insurance policies usually are not form based, but instead are manuscript policies. One must work with a broker to identify the project’s specific risk exposure and the optional coverages.

A basic Builder’s Risk insurance policy will cover physical loss or dam age to the physical property and tangible assets involved in the project. But damage often results in delays that lead to additional costs that a basic Builder’s Risk policy does not cover, including additional construction loan inter est, renewing permits or licenses, legal or accounting fees, reinspection fees, project administration fees, and security expenses. These “soft costs” usually are covered by endorsements. A broker should evaluate all potential expenses that should be included based on the project specifics. The specified soft costs are covered when they result from a covered loss under the policy; however, insurance companies may require a deductible determined by the length of the delay.

Policyholders also can purchase “delay in completion” coverage by endorsement for losses incurred from completion delays that do not result from covered causes of loss under the policy, including labor disputes and strikes, trade embargoes, and acts of God. Delay in completion coverage extends to the named insured’s consequential damages. The general contractor must be specifically identified in the delay in completion endorsement; if it is, the endorsement covers the contractor’s liquidated damages.

Owners also can purchase a Business Interruption endorsement to cover revenues lost to construction delays stemming from physical damage that actually and necessarily interfere with or suspend business operations. To trigger BI coverage, the physical dam age must result from a covered cause of loss to covered property, and the actual loss must result from the covered interruption within the indemnity period. The BI endorsement typically covers net profit or loss, fixed costs, continuing expenses, and expenses incurred to avoid or minimize a delay in opening. Owners also can purchase Contingent Business Interruption coverage. CBI responds when damage at a third-party facility interrupts the policyholder’s project. The covered location need not be on site, as long as the damage results from a peril covered under the policy.

Coverage disputes are common: Insurance companies commonly con test causation, scope, and valuation. The interaction between builder’s risk claims, liquidated damages obligations, and contract delay damage provisions creates layered complexity. Getting that right requires construction counsel and insurance coverage counsel working together from first notice of loss.

Takeaways

First, “no damages for delay” clauses must use explicit exclusionary language. “Sole and exclusive remedy” and “not damages” are not magic words; they reflect the level of specificity a court applying Wyoming law demands. A generic time extension provision will not bar a contractor’s delay claim.

Second, liquidated damages rates must be defensible and traceable to a genuine pre-contract estimate. Document the analysis.

Third, insurance coverage must be structured to match the contract. Builder’s risk, delayed opening, and Business Interruption coverages must align with the delay damage regime the contract creates.

Fourth, engage construction and insurance coverage counsel early. Waiting until the dispute matures to bring in counsel can lead to significant loss and create significant legal expenses in tackling the problem.

Read the Wyoming Lawyer article here.