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Whether through a failure to obtain qualified professional advice
or through misplaced trust in a contractor, subcontractors
occasionally sign an agreement whereby they contractually
forego certain legal rights. An example of such a waiver of
right is when a subcontractor agrees to a broadly worded “no
damages for delay” clause. When this happens, the court is
frequently placed in the position of having to decide whether to
place greater merit on the bargained-for contract or the implied
principles of contract law.
In Tricon Kent Co. v. Lafarge North America, Inc., 2008 Colo.
App. LEXIS 673 (Colo. Ct. App. May 1, 2008), Tricon
(“Subcontractor”) entered into an agreement (the
“Subcontract”) with Lafarge (“Contractor”) to perform earthwork
on certain highways in Douglas County, Colorado. As a
part of the Subcontract, Subcontractor agreed to a “no damages
for delay” clause, under which — Contractor argued — Subcontractor
waived its right to recover additional compensation as a
result of delays or interference (to Subcontractor’s performance)
caused by the Contractor. At the completion of Subcontractor’s
work, a dispute arose as to the amount due Subcontractor,
as Subcontractor had experienced significant setbacks
during construction.
At trial, Subcontractor alleged that Contractor had breached its
implied duty of good faith and fair dealing by significantly
delaying Subcontractor’s ability to perform its scope of work
under the Subcontract. Specifically, Subcontractor argued that
the scope of its work had changed during the performance of
the Subcontract as a result of Contractor’s failure to properly
schedule the project and that Contractor interfered with its
performance and caused it to encounter significant obstacles
and costly delays. The jury returned a verdict in favor of Subcontractor,
which Contractor appealed.
On appeal, Contractor contended the trial court erred in denying
its motion for a directed verdict due to the incontrovertible
existence of the “no damages for delay” clause. Subcontractor
countered that the “no damages for delay” clause was inapplicable,
and that
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even if it did apply, there was evidence that
Contractor’s actions constituted active interference with the
Subcontract. Contractor, by contrast, argued that, in order to
show active interference, Subcontractor had to show that Contractor
committed some affirmative, willful act, in bad faith,
to unreasonably interfere with Subcontractor’s compliance
with the terms of the Subcontract, a burden which Subcontractor
could not meet.
The issue of a “no damages for delay” clause was one of first
impression in Colorado. As a result, the appellate court placed
considerable reliance on the opinions of other jurisdictions,
the majority of which had previously upheld the validity and
enforceability of “no damages for delay” clauses. The court
noted, however, that the “no damages for delay” clause was to
be strictly construed against Contractor, as the drafter of the
contract.
The appellate court ultimately adopted a modern interpretation
of active interference as an exception to a “no damages
for delay” clause, under which Subcontractor only needed to
show that Contractor committed an affirmative, willful act
that unreasonably interfered with Subcontractor’s performance
of the Subcontract. As the appellate court rejected Contractor’s
argument that Subcontractor had to prove Contractor’s
bad faith, it affirmed the trial court’s decision in favor of
Subcontractor.
The decision in Tricon Kent is worth noting, as the Colorado
court showed an interest in moving beyond the practice of
strictly interpreting contracts, towards allowing subcontractors
to recover rights that had been contracted away in cases
where a contractor abuses its bargained-for privileges. Although
the courts are likely to abide by the stated clauses of
the contract, this case shows that some courts will consider
the issues beyond the four corners of the contract when ruling
on a contractual issue. As a practical matter, before relying
on a “no damages for delay” clause, a contractor should verify
the enforceability of such clauses in the jurisdiction governing
the contract.
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