Despite a no-damages-for-delay provision in the construction contract, a North Carolina appellate court decided in Southern Seeding Service, Inc. v. W.C. English, Inc., to allow a contractor’s delay claim for additional labor and material costs under the contract’s equitable adjustment provision.

Southern Seeding Service, Inc., a subcontractor, provided grassing work on a transportation project in Greensboro, North Carolina, pursuant to a subcontract with W.C. English, Inc. The subcontract, which paid Southern Seeding a unit price for seeding and mulching services, contained two provisions relevant to payment for project delays: an equitable adjustment provision and a no-damages-for-delay provision.

The project was delayed 256 days beyond its originally scheduled completion date. Southern Seeding invoiced W.C. English for its additional unit costs for labor and materials arising from the delay. The trial court ruled Southern Seeding was barred by the no-damages-for-delay provision from any additional compensation due to the delay. Southern Seeding appealed.

The appellate court distinguished the no-damages-for-delay provision and the equitable adjustment provision, finding that each provision allocated distinct risks which should be treated separately. The no-damages-for-delay provision barred only damages resulting from delay to the extent such damages were not compensated to W.C. English by the project owner or another third party. The equitable adjustment provision, on the other hand, stated that the unit prices in Southern Seeding’s subcontract were "based on the assumption that the contract will be completed within time as specified in the specifications at time of bidding. Should [Southern Seeding’s] work be delayed beyond said time without fault on [Southern Seeding’s] part, unit prices herein quoted shall be equitably adjusted to compensate" Southern Seeding for its increased cost.

The court ruled that the equitable adjustment provision allowed Southern Seeding to recover its "market driven cost increases associated with material and labor costs" incurred after the originally scheduled completion date. Such costs, it found, were the result of conditions which significantly differed from those indicated in the subcontract and contemplated by the parties, and as such, recovery of these costs was not prohibited by the no-damages-for-delay provision. The court also allowed Southern Seeding to seek recovery of such costs, to the extent not collected from W.C. English, under the payment bond for the project.

Contractors may note several important contracting pointers from the Southern Seeding opinion. First, a contractor should identify each contractual provision providing a basis for recovery in addition to the contract price. When a changed condition arises, or a project suffers delays, the contractor should ask whether the change implicates any entitlement provision to form the basis for recovery of its increased costs (noting that the condition may implicate more than one contractual provision). Second, as demonstrated by Southern Seeding’s repeated letters to W.C. English in the above-described project, a contractor facing increased costs for a changed condition should follow all contractual notice requirements, citing every potential contractual basis for its claim (or, alternatively, citing no specific clause, but instead relying on "the contract and applicable law"), to prevent any allegation that the contractor waived its contractual right of recovery. Recovery seemingly barred under a no-damages-for-delay provision may in fact be permitted by an equitable adjustment clause or other similar provision in a construction contract.

Finally, for owners, contractors, and subcontractors, Southern Seeding "won" this argument when it successfully negotiated a contract adder that expressed the basic assumption for its unit prices. Absent that important provision to the changes clause, it is likely the general contractor would have prevailed, even if such a result might be deemed unfair.