It happens all the time! The owner-contractor agreement contains a “no damages for delay” clause; a clause requiring that all changes be in writing before work is performed; and a clause requiring partial lien waivers and releases with each periodic payment. And yet we see a claim for delays and extras filed at the end of a construction project that challenges these very contract provisions.
The Court of Appeals of North Carolina recently grappled with this exact scenario in Gamewell Mechanical, LLC v. Lend Lease Construction (Sept. 1, 2020) (PDF). The project involved the new construction of three buildings in Durham, North Carolina. The mechanical subcontractor filed suit against the prime contractor for $2.7m for breach of contract for nonpayment, claims for delay damages and enforcement of its lien rights. The prime contractor argued that subcontractor’s claim should be limited to its contract balance of approximately $500k in retainage. Ultimately, the trial court awarded the subcontractor more than $800k for its claims.
On appeal, the contractor argued that the award should have been limited to the $500k in retainage. By executing lien waivers and releases with each periodic payment, the contractor argued, the subcontractor had waived all of its claims other than retainage. The parties’ lien waiver contained language where the subcontractor could have reserved disputed claims, but the subcontractor never did so. The appellate court held that the trial court properly rejected a majority of the subcontractor’s claims that were subject to either the “no damages for delay” clause or the period lien waivers.
Notably, the trial court made a distinction for “day-to-day” or “daily” changes in the field for extra work, which was credited by the appellate court as follows:
[I]t is undisputed that there were delays, numerous Change Orders issued, re-sequencing, and coordination issues occurring throughout the project. Given the daily problems that arose as a result of these issues, [subcontractor’s] failure to reserve claims regarding the day-to-day miscellaneous items done in the field at the direction of [contractor] is not a material breach-of-contract. . . . The waiver and release documents submitted with each pay application could not cover claims not readily apparent due to daily changes on the job.
The appellate court held that competent evidence supported the trial court’s decision on each of these points.
A New Exception?
The opinion is notable because of the court’s findings that are highlighted in bold and underline above. When I read the court’s opinion, I started to think: (1) Is there now a “daily changes” exception to lien waivers and releases? (2) Are day-to-day miscellaneous items compensable even where a party fails to reserve their rights on these type of cumulative claims? According to the court in Gamewell Mechanical, the answers these questions is yes. It would be interesting to see what other courts have reached similar conclusions.