No Damages for Delay Exceptions: Active Interference?
Construction and Procurement Newsletter Q4 2014
While a contractor generally has a right to a time extension and damages stemming from a delay caused by the owner, the owner (or general contractor if the harmed party is a subcontractor) may be able to assert several defenses. One of those defenses is based on a clause that is included in many construction contracts, generally referred to as a “no-damages-for-delay” clause. These clauses provide that a contractor’s (or subcontractor’s) sole remedy for delay, regardless of the cause, is additional time, and that no additional compensation will be paid for delay.
In most states, no-damages-for-delay provisions are generally enforceable as long as they are clear and unambiguous. Courts, however, have recognized a few exceptions. While these exceptions vary from state to state, the North Dakota Supreme Court recently issued its decision in C&C Plumbing & Heating, LLP v. Williams County articulating one of the broadly recognized exceptions to a no-damage-for-delay provision, the so-called ‘active interference’ exception.
C&C Plumbing served as one of several prime contractors in the construction of a new law enforcement center by the Williams County Board of County Commissioners (“County”) in Williston, ND. Parsons Commercial Technology Group, Inc. (“Parsons”), the County’s construction manager, awarded contracts for the work to C&C Plumbing & Heating, LLP (“C&C”), American General Contractors, Inc. (“AGC”), and others. After construction on the project began, many delays occurred; substantial completion was not accomplished until approximately seven months after the milestone schedule date for substantial completion.
C&C and AGC brought a lawsuit against the County asserting claims for additional costs incurred as a result of the delays. The district court held that the no-damages-for-delay clause in the contract barred the delay damages for the first four months of delays. These delays occurred due to adverse weather conditions, the discovery of a large boulder in the proposed elevator pit, and the failure of the excavation contractor to perform its work on time. However, the district court found that the balance of delay was caused by the County, through its agent, Parsons, who “actively interfered” with the contractors. Therefore, the Court allowed C&C and AGC the Contractors to recover their damages associated with the latter delay despite the no damage for delay provision.
AGC appealed to the North Dakota Supreme Court, which upheld the district court’s decision. The court recognized that “[a]ctive interference is a well-recognized exception to the enforceability of [a] no damages for delay clause.” The court explained that it is not necessary to show bad faith to rely on the active interference exception; instead, the contractor only has to prove that there was an affirmative, willful act that unreasonably interfered with performance of the contract. The Court cautioned that the contractor needed to prove more than a simple mistake, error in judgment, lack of total effort, or lack of complete diligence by the owner or its agents. In this case, the court relied on the district court’s findings that when Parsons directed AGC’s steel erector to erect the steel “outside-in” instead of in a conventional “inside-out” fashion, Parsons effectively usurped AGC’s exclusive authority to perform its steel erection work in accordance with its own means and methods and that such actions constituted active interference.
While no-damage-for-delay provisions are generally enforceable and should be negotiated carefully, this case serves as a reminder that the inclusion of the clause itself may not completely extinguish a contractor’s ability to recover its damages. Active interference remains a viable exception in most states, especially when the interference goes to a contractor’s means and methods.