A fine line in the sand

A North Carolina case considers delay damage claim

Larry Caudle / August 08, 2017
Larry Caudle

The annals of construction law are filled to the brim with cases involving the enforceability of No Damage for Delay clauses, and multi-state contractors must keep abreast of the particular approaches adopted to construe these provisions by states in which they operate.

Some states declare No Damage for Delay clauses unenforceable on public policy grounds, either through legislation or court decisions. Other states enforce them so long as they are clear and unambiguous. A third group of states have passed statutes making such clauses unenforceable only with respect to public contracts.

Once in a while, I run across an interesting case where the heart of the dispute lies not upon the enforceability of the No Damage for Delay clause, but whether the damages being sought are, in fact, “delay damages.” This was the case in a North Carolina litigation involving a project constructed for the North Carolina Department of Transportation.

In Southern Seeding Serv. Inc. v. W.C. English Inc., 719 S.E.2d 211 (N.C. 2011), W.C. English performed grading work under a subcontract with the prime contractor on a highway widening project. English’s scope of work also included seeding and mulching, which it sub-subcontracted to Southern Seeding Service Inc. During construction, it became apparent that delays, which occurred through no fault of Southern, would extend the project duration significantly. Consequently, Southern provided notice to English that it would be seeking an adjustment in its subcontract unit prices for any work performed beyond the original scheduled duration. Southern finished its work 263 days after the original project completion date and submitted to English an invoice for approximately $194,000, which represented the difference between the subcontract unit prices and the adjusted unit prices for work performed after the original contract completion date. English refused to pay the increase and Southern filed suit.

At trial, English relied on a provision in the subcontract that limited Southern’s entitlement to delay damages to those English actually receives from the prime contractor. In this case, English had no remedy against the prime, and thus it argued that Southern had no remedy against it. Southern, on the other hand, cited Note 15, which was contained in a scope of work attachment to the subcontract and provided that “[u]nit prices herein quoted are based upon the assumption that the contract will be completed within the time as specified in the specifications at time of bidding. Should our work be delayed beyond said time without fault on our part, unit prices herein quoted shall be equitably adjusted to compensate us for increased cost . . . ” The court ruled that, when read together, the relevant provisions prevent Southern from collecting on its increased unit prices unless English collects from the prime. Since English had no remedy for delay against the prime contractor, the court ruled that Southern was not entitled to unit price increases and thus the court ruled for English. Southern appealed.

The Court of Appeals of North Carolina observed that a No Damages for Delay clause is a special clause used in the construction industry and, citing previous cases decided in the state, ruled that delay damages are those involving a contractor’s “extended” general conditions. These damages, the court reasoned, are distinguishable from other increased costs that are incurred as a result of delay. Accordingly, it held that Note 15, which reserved the right for unit price increases if the project were delayed, does not relate to pure delay damages that are contemplated by the No Damage for Delay provision in the subcontract. Southern thus prevailed.

The appeals court in North Carolina thus drew a fine line in the sand between time-related site overhead costs and other increases in direct costs of performing work that arise from delayed performance. It held that the former are foreclosed by a No Damage for Delay clause, while the latter are not. In other words, delay damages are not the same as delayed-caused or delay-related damages. The court stressed this distinction more than it did the existence of Note 15. For this reason, it appears that the decision would have been the same even absent Note 15. More specifically, Southern would likely have prevailed even if Note 15 were not part of the subcontract.

About the Author

Caudle is a principal in Kraftson Caudle LLC, a law firm in McLean, Va., specializing in heavy-highway and transportation construction. Caudle can be contacted via e-mail at [email protected]

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