Many subcontractors operate at the mercy of a general contractor and often find themselves delayed in completing a project as a result of the general contractor's scheduling changes. A recent decision from the North Carolina Court of Appeals cautions subcontractors in this position to consult and carefully comply with the terms of the contract between the general contractor and the project owner in order to preserve their right to recover damages for delays caused by another contractor.

The case of American National Electric Corp. v. Poythress Commercial Contractors, Inc., 604 S.E. 2d 315 (2004) arose as a result of work performed by American National Electric Corporation ("ANE") on the Cary Fire Station No. 6 project. Poythress Commercial Contractors, Inc. ("Poythress") was the general contractor on the project and executed a subcontract with ANE under which ANE would supply all material and labor to perform certain electrical work for the project.

The subcontract provided for a specific time period in which ANE would have to perform its electrical work under the subcontract. During the course of ANE's work on the project, Poythress made certain changes that directly affected the schedule and sequence of ANE's electrical work. As a result, ANE was denied sufficient access to perform all of its work on the project and consequently was unable to complete the project in the time period specified by the subcontract. Prior to ANE's completion of its work on the project, its president gave verbal notice to the project superintendent that ANE's work was being adversely impacted due to Poythress' schedule and sequence changes. ANE, however, did not provide written notice of its claim for damages until approximately five months later, after it had completed its work on the project. ANE's claim for damages stated that Poythress' changes to the scheduling and sequence of ANE's work caused "labor inefficiencies and loss of productivity."

ANE filed a complaint against Poythress and the project's architect seeking damages for breach of contract. The trial court granted summary judgment in favor of Poythress on the grounds that ANE failed to comply with the notice provisions of the General Contract, which were incorporated into the subcontract.

The subcontract stated that claims for "altered work, changes, modifications, change conditions... and the damages resulting from ... shall be governed by the provisions of the General Contract." The General Contract between Poythress and the project's owner required that "claims for delay compensation must be made in writing to the project's architect and owner within 21 days after the occurrence or event giving rise to the claim or within 21 days after the claimant first recognizes the condition giving rise to the claim." ANE's president admitted that ANE was aware that its work was being delayed in April 2000, but did not notify Poythress of its delay claim in writing until September 2000, which was not within the 21 day period required by the General Contract.

The North Carolina Court of Appeals found that ANE was bound to the contractor under the same obligations as the contractor was bound to the owner. Those obligations included the time in which the notice of delay for compensation had to be provided. Therefore, the North Carolina Court of Appeals upheld the trial court's decision in favor of Poythress because ANE failed to comply with the notice provisions in the General Contract.

Given the court's decision in this case, subcontractors faced with delays that will adversely impact their compensation should consult the provisions in the General Contract which may govern their obligations with the general contractor via a "pass-through" or similar clause. Of course a timely claim made by a subcontractor may give rise to a contractor's duty or ability to raise the same claim with the project's owner, but an untimely notice by the subcontractor may very well defeat the right to compensation altogether for delays or other claims on the project.

If you have any questions regarding this alert or other Construction Law related topics, please contact Court Young at 704.342. or cyoung@poynerspruill.com or Marshall Yoder at 704.342.  pmyoder@poynerspruill.com.