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HBS Contractors Inc. v. National Fire Insurance Co.

June 16, 1998


The opinion of the court was delivered by: Walker, Judge.

Appeal by plaintiff and cross-appeal by defendant Cumberland County Board of Education from judgment entered 30 September 1996 by Judge E. Lynn Johnson and judgments entered 3 March 1997 by Judge Wiley F. Bowen in Cumberland County Superior Court. Heard in the Court of Appeals 2 April 1998.

This appeal arises from two separate actions filed by the plaintiff (HBS) in Robeson County, which were later removed to Cumberland County. The first action, filed 5 May 1995, alleged a breach of the construction contract by defendant Cumberland County Board of Education (Board) and claims which included negligence and bad faith on the parts of defendant architect Dan MacMillan (MacMillan) and defendant MacMillan Ellinwood Design Associates (MEDA) in administering the construction contract.

The second action, filed 10 January 1996, further alleged abuse of process and malicious prosecution on behalf of the Board. Thereafter, the Board filed a counterclaim against HBS for trespass. By consent, the two actions were then consolidated.

The Board then moved for partial summary judgment on its trespass counterclaim which the trial court granted on 30 September 1996. Thereafter, on 21 January 1997, MacMillan and MEDA moved for summary judgment as to the plaintiff's claims against them in the first action. The trial court granted this motion on 3 March 1997. HBS filed notice of appeal and this Court stayed all further proceedings pending the appeal.

On 25 June 1993, HBS entered into a contract with the Board whereby HBS agreed to serve as general contractor for the construction of Hefner Elementary School. The Board agreed to pay HBS $3,346,488.00 with the work to be completed within 450 consecutive calendar days from the time the "notice to proceed" became effective and to substantially complete the work thirty days prior to full completion. The construction of the school was a "multiple prime" project with separate contracts being awarded for the plumbing, mechanical and electrical work.

Prior to the contract between HBS and the Board, the Board and MEDA entered into a contract on 11 December 1992 whereby MEDA agreed to provide architectural design and contract administration services during construction of the school. Although MacMillan was the architect in overall charge of the project, other MEDA employees were involved.

The contract administration services to be provided by MEDA included: inspection of the work with the attendant duty to reject non-conforming work; the duty to certify, modify or reject pay applications; grant time extensions; general administration of the contracts between the Board and the contractors; approval of specifications, designs, and shop drawings; and the responsibility to determine the contractors' compliance with the contract.

The "notice to proceed" was issued on 25 October 1993. From this time until late January 1994, HBS became concerned about delays it was encountering due to wet and cold weather, muddy conditions and restricted site access, along with other delays. Grady Simmons (Simmons) of HBS corresponded with MEDA expressing frustration over these delays.

The contract between HBS and the Board provided that claims "must be made within 21 days after occurrence of the event giving rise to such Claim or within 21 days after the claimant first recognizes the condition giving rise to the Claim, which ever is later." Further, with respect to claims for delays for adverse weather conditions, the contract provided that these must be "documented by data substantiating that weather conditions were abnormal for the period of time and could not have been reasonably anticipated, and that weather conditions had an adverse effect on the scheduled construction." Moreover, the Supplementary General Conditions and General Requirements to the Contract also required HBS to keep daily weather logs on the job site which show "the effect of weather on progress of work."

At the summary judgment hearing, HBS produced evidence which tended to show pursuant to the above language in the contract, that the issue of time extensions was discussed during a January 1994 job conference. As a result of this Discussion, an agreement was reached whereby requests for time extensions could be submitted to MEDA at or near the end of the project. MEDA's project manager, Dan Blair (Blair), testified in his deposition that the total time extension MEDA would consider granting was intended to encompass and include, as fairly as possible, all delays that had been experienced by all the prime contractors. Further, MEDA had asked that HBS submit a monthly report indicating inclement weather dates. Moreover, Blair testified that because MacMillan wanted to avoid numerous requests for time extensions, the prime contractors were not required to submit claims requesting extensions. Further, the practice of granting time extensions at or near the end of a project was not unique to this project and had been implemented on at least two other jobs MEDA had with this Board.

On 28 July 1994, MacMillan reported to the Board's Facilities Committee that due to the number of weather delays experienced by HBS, the project would not be ready by February 1995. However, MacMillan also reported that HBS was making reasonable progress on the project.

During an October 1994 meeting, the Board's attorney, George Reid, informed MacMillan that his procedure for granting time extensions should be as the delays occur rather than at the end of the project. Thereafter, on 24 October 1994, the Board's assistant superintendent, Tim Kinlaw (Kinlaw) informed MEDA that HBS was not to receive any extensions of time.

On 24 October 1994, HBS submitted its routine monthly pay application for the work performed in September 1994. MacMillan certified this pay application and forwarded it to the Board for payment on 26 October 1994. Subsequently, Kinlaw informed MacMillan that the Board would not honor the pay application. In a letter to HBS dated 8 November 1994, Macmillan then informed HBS that the pay application was nullified and that grounds existed for this action. However, MacMillan testified in his deposition that the nullification was a mistake and that he "should have stuck to his guns and said that [he] was not going to withdraw the application."

Thereafter, on 23 November 1994, the Board voted to terminate its contract with HBS. The Board, in reaching this decision, relied on three reasons set forth by MacMillan certifying that cause existed to declare HBS in default and thus terminate the contract. Those reasons are as follows: (1) HBS's inability to complete the project by the contract completion date of 4 March 1995; (2) the North Carolina Department of Health and Natural Resources (DEHNR) had imposed fines on the Board for erosion control violations for which HBS was ...

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