In Southern Seeding Service, Inc., v. W.C. English, Inc., 2011 N.C. App. LEXIS 2432 (December 6, 2011), the North Carolina Court of Appeals reversed a trial court's determination that a "no damages for delay" clause prevented a subcontractor from claiming delay damages under a separate "equitable adjustment" clause.  The court held the trial court's blending of the two provisions did not give effect to the contract as a whole and was not in accord with the intentions of the parties. 

In the case, the construction project at issue finished 256 days beyond its scheduled completion date.  The subcontractor plaintiff notified its contractee of a right to an equitable adjustment for increased costs incurred in the form of unit price increases after a certain date.  The plaintiff filed suit seeking an equitable adjustment for increases in unit costs of labor and materials furnished for the project after a certain date.  The trial court denied plaintiff's claim, holding that the plaintiff had no contractual remedy to receive an adjustment in unit prices for delay beyond the original completion date, because the contract contained a "no damages for delay" clause providing that in the event of delay, the plaintiff was entitled only to a reasonable extension of time, but not to compensation or damages for any delay in the work.  The trial court found that increased unit prices due to delays would constitute delay damages and were contractually precluded. 

The appellate court disagreed, noting that the courts had long defined "delay damages" separately from damages for equitable adjustments.  "Delay damages" would include the cost of keeping tools and equipment on site for an extended period.  Equitable adjustments, on the other hand, allocate the risk of increased costs in the event of unforeseen circumstances, even unforseen circumstances arising out of delays.  The court of appeals noted that its courts had consistently distinquished delays damages from damages incurred for increased costs.  Thus, the trial court's failure to award equitable adjustment costs unfairly and unreasonably shifted all risks for material increases to the plaintiff, despite the language of the subcontract.  The two provisions could be satisfactorily read together, provided the traditional distinction between delay damages in the form of extended costs, vs. increased costs due to delays, was preserved.  The trial court's finding was therefore reversed.

Submitted by Anna Oshiro