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You’re a general contractor on a large commercial construction project impacted by significant delays. You place most of the blame for the delays on the project architect, who you contend issued a wrongful stop work order arising from the performance of one of your subcontractors and performed other construction administration services negligently. Both you and the sub have incurred significant extended general conditions as a result of the work suspension, and you invite the sub to make a delay claim you intend to pass through as a component of your own claim to the owner, who, under the contract documents, is legally responsible for the acts of its architect.
The sub wants to participate in a pre-litigation mediation you’ve scheduled with the owner, but you’re hesitant to oblige. The owner, after all, will spend mediation blaming your sub for the issues giving rise to the stop work order, and you worry your sub’s presence could actually hamper, rather than facilitate, the settlement negotiations.
Are you better off refusing the sub’s request to participate in the mediation, trying to settle with the owner first, and then circling back to resolve open issues with your sub once things are squared away up-the-chain?
That would be a risky play, as a 2011 North Carolina Court of Appeals decision demonstrates.
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There is no milestone more significant to a commercial construction project than substantial completion. For an owner, it’s the long-awaited moment it can make beneficial use of its investment. For prime contractors, it’s the moment the owner’s rights to terminate and/or assess liquidated damages is cut off. For subcontractors, it’s the moment contractual warranties typically begin to run. The list goes on and on.
In light of how many legal rights and defenses are tied to the moment of substantial completion, you would think that contracting parties would take extra care to (1) define what constitutes “substantial completion” and (2) ensure that “substantial completion” is achieved in accordance with that carefully crafted contractual definition.
That’s not always the case, as a 2013 decision from the U.S. Court of Appeals for the Fourth Circuit (which includes North Carolina) reveals.
In an unpublished February 18, 2014 decision, the North Carolina Court of Appeals (“COA”) refused to let a project owner pursue drastically higher lost profit damages after its counterclaim had been tried, appealed and remanded for further findings on the issue of damages.
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In J.T. Russell & Sons, Inc. v. Silver Birch Bond, LLC, the owner, Silver Birch Pond (“SBP”), was the developer of a subdivision that had hired a paving company to perform the project’s asphalt paving work for about $150,000. SBP refused to pay for the work, citing deficiencies in the contractor’s performance. At trial, SBP successfully defeated the contractor’s claim for payment and prevailed on its own counterclaim for construction defects, but on appeal, the contractor successfully argued that the jury’s award of damages wasn’t fully supported by the evidence. The COA agreed, sending the case back to the trial level for further findings of fact on various damages issues.
That’s when SBP tried to up the ante on its alleged lost profit damages.