North Dakota Supreme Court Establishes Defense to “No Damage for Delay” Clause

by Dorsey & Whitney LLP
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In June 2014, the North Dakota Supreme Court issued its decision in C&C Plumbing & Heating, LLP v. Williams County et al, No. 20130297. The Court articulated a new defense to the application of a “no damage for delay” clause. Although the Court’s decision reaffirms the enforceability of NDFD clauses, it also establishes a defense to the clause in cases where an owner actively interferes with a contractor’s work. Owners and contractors in North Dakota should note this newly accepted defense.

Discussion

The C&C Plumbing case involved a project for the construction of a new law enforcement center by the Williams County Board of County Commissioners (the “County”) in Williston, North Dakota. Parsons Commercial Technology (“Parsons”) acted as the County’s construction manager. American General Contractors (“AGC”) and C&C Plumbing & Heating (“C&C”), among others, were awarded prime contracts for several portions of the work. After construction began, the project incurred delays, and substantial completion was not accomplished until approximately seven and one-half months after the originally scheduled completion date.

C&C commenced a lawsuit against the County in which it and AGC brought claims for additional costs incurred as a result of the delay. The district court held that the NDFD clause in the AIA contracts at issue barred certain delay damages, but allowed recovery of those delay damages caused by the County’s active interference.

AGC appealed to the North Dakota Supreme Court, which affirmed the district court’s decision. The Court held that the NDFD clause was enforceable, and barred certain claims for damages by AGC. However, the Court also affirmed the district court’s holding that the NDFD clause did not apply during those times during which the County “actively interfered” with AGC’s work. The Court noted that “active interference” is a well-established exception to the enforceability of a NDFD clause. The Court relied on the district court’s finding that the County and Parsons interfered with AGC’s work by demanding that it erect the steel in an “outside-in” manner, instead of the conventional “inside-out” manner. The Court stated that this decision effectively interfered with the AGC’s authority to perform the work according to its own means and methods, and awarded damages for delays caused by this active interference.

Conclusion

With the C&C Plumbing decision, North Dakota joins those jurisdictions that hold an owner may not enforce a NDFD clause where its active interference with the contractor’s work caused the delay in question. North Dakota owners and contractors alike should be aware that owner interference with the contractor’s preferred means and methods may be sufficient to entitle the contractor to recovery for damages incurred as a result of any delays caused by that interference.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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