Contract – Construction – Delays – Equitable Adjustment – Sureties

Southern Seeding Service, Inc. v. W.C. English, Inc. (Lawyers Weekly No. 11-07-1228, 17 pp.) (Robert N. Hunter Jr., J.) Appealed from Guilford County Superior Court. (Shannon R. Joseph, J.) N.C. App. Click here for the full-text opinion.

Holding: A construction subcontract’s “no damages for delay” clause does not prohibit the subcontractor from receiving compensation for increased prices under the “equitable adjustment” clause.

We reverse judgment for defendants and remand.

Facts

In plaintiff’s subcontract with defendant W.C. English, Inc. (English), the “equitable adjustment” clause at Note 15 provided, “Unit prices herein quoted are based upon the assumption that the contract will be completed within 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….”

Paragraph 7 of the subcontract included a “no damages for delay” clause: “Should [plaintiff], without fault or neglect on its own part, be delayed in the commencement, prosecution, or completion of the Work by the fault or neglect of [English], [plaintiff] shall be entitled to a reasonable extension of time, only….

In no event shall [plaintiff] be entitled to compensation or damages for any delay in the commencement, prosecution, or completion of the Work except to the extent that [English] shall receive such compensation or damages from Owner or other third party.”

The scheduled completion date for the project was July 1, 2007, but the project was not completed until March 2008. Plaintiff sought an equitable adjustment of $194,941.39 for increased costs. English offered to pay plaintiff $2,300.

Plaintiff filed suit under the equitable adjustment clause. The trial court read the equitable adjustment and “no damages for delay” clauses together and determined that, because English could not obtain an equitable adjustment from the general contractor or the project owner, plaintiff’s claim was barred by the contract language.

Analysis

Construction contracts often contain clauses with terms of art unique to the construction industry. A “no damages for delay” clause and an “equitable adjustment” clause are two examples of such terms of art.

A “no damages for delay” clause often appears in construction contracts and is aimed to preclude claims on the part of the contractor or subcontractors for damages due to delay in commencing or completing the performance of such contracts.

An equitable adjustment clause, on the other hand, allocates the risk of increased costs should unforeseen circumstances present conditions which significantly differ from those indicated to exist in the contract.

Our courts have consistently distinguished delay damages from damages incurred for increased costs arising out of the same delay circumstances.

Paragraph 7 forecloses the possibility of plaintiff collecting damages “for any delay in the commencement, prosecution, or completion of the Work except to the extent that [English] shall receive such compensation or damages from Owner or other third party.”

Note 15, on the other hand, provides that plaintiff’s bid for the project was “based upon the assumption that the contract will be completed” by July 1, 2007 and affords plaintiff an equitable adjustment should its project costs increase after that date.

Paragraph 7 is clearly a “no damages for delay” clause; Note 15 is clearly an “equitable adjustment” clause. These clauses allocate two distinct risks, and our courts have consistently treated these provisions separately.

The trial court’s blending of these separate provisions fails to give effect to the contract as a whole and frustrates the intentions of the parties. While plaintiff’s relief under Paragraph 7 is limited to the extent English is compensated by the general contract or owner for project delays, Note 15 does not set forth this limitation.

Therefore, we cannot agree with the trial court’s conclusion that plaintiff was foreclosed from an equitable adjustment under Note 15 simply because it was foreclosed from delay damage under Paragraph 7. Such a reading fails to give effect to both contractual provisions and improperly shifts the risk of increased material costs to plaintiff.

Plaintiff seeks only an equitable adjustment under Note 15 to recover for market driven cost increases associated with material and labor costs incurred after July 1, 2007, the date originally intended for completion of the project. The plain language of Note 15 affords plaintiff this relief, and the language of Paragraph 7 does not negate it.

Accordingly, the trial court erred in determining that Paragraph 7 foreclosed plaintiff’s relief under Note 15 and further erred in concluding that plaintiff is not entitled to an equitable adjustment.

Plaintiff is a subcontractor seeking recovery based upon a payment bond executed by the general contractor on a construction project. The payment bond states that it applies to “all persons supplying labor and materials in the prosecution of the [project]….” This language is sufficient to hold the defendant-sureties liable to plaintiff on the general contractor’s payment bond.

Reversed and remanded.