Tag Archives: damages

NC State Construction projects– Privity, Multi-Prime Contracts, and the Ability to Be Sued by Parties You Don’t know (Law note)

Posted on by

At the recent seminar on construction law in North Carolina, I was asked whether parties could be sued by other parties on state construction projects when there is no contract between those parties.  The answer is yes. In the following series of blog posts, I will address three major cases which address this question in several different permutations.

For today’s post, I will discuss contractual privity, the multi-prime statute, and how the two apply on North Carolina state construction projects.  In later posts, I will discuss the application of that statute to different parties in the construction context.

Multi-prime contracts

In North Carolina, the state entity who is the owner of the construction project must bid the project pursuant to one of several designated ways.  One common method sometimes required of public bidding is the “mulit-prime” contract, in which the State has at least 4 separate contracts, for:

(1) Heating, ventilating, and air conditioning

(2) Plumbing and gas fittings

(3) Electrical wiring and installations

(4) General construction relating to erection, alteration, or repair on public property

N.C. Gen. Stat. §143-128(a). 

The purpose of the multi-prime statute is two-fold:

  1.  It encourages lower bids by preventing pass-through cost mark-ups to the state
  2. It allows smaller specialty contractors to enter bidding directly with state without having to have a working relationship with a general contractor, thereby opening up state jobs to a wider array of potential contractors
Contractual Privity

 In general, contractual privity is required to sue another entity on a construction project—that is, you have to be in a contractual relationship with the party you are suing.  There are exceptions to this rule.  For example, you can be sued in negligence for property and personal damage by a party that you do not have a contract with.  (See my post discussing the architect’s liability for economic loss  resulting from breach of architect’s common-law duty of due care  ).  In addition, the state legislature has provided the ability for contractors to sue one another, or other entities involved in the construction project, without having to sue the owner or deal with the State Construction Office.

 NC statute on liability:

Each separate contractor shall be directly liable to the State of North Carolina, or to the county, municipality, or other public body and to the other separate contractors for the full performance of all duties and obligations due respectively under the terms of the separate contracts and in accordance with the plans and specifications, which shall specifically set forth the duties and obligations of each separate contractor. For the purpose of this section, “separate contractor” means any person, firm or corporation who shall enter into a contract with the State, or with any county, municipality, or other public entity to erect, construct, alter or repair any building or buildings, or parts of any building or buildings.

N.C. Gen. Stat. §143-128(b).   [Emphasis added].

This statute has been interpreted over the past decade to allow essentially any party to sue any other party directly on state construction projects.  In the next blog post, I will discuss the first of three major cases dealing with this issue.

Failure to Coordinate in Design-Bid-Build case costly mistake

Posted on by

In a recent Business Court decision, an architecture firm was hit with a $2.3+ million judgment stemming from the design and construction of the kitchen exhaust and HVAC ductwork systems in the Charlotte Bobcats Arena.

The project was a “fast track” project, and the architecture firm claimed they were only contracted to provide diagrammatical drawings of the arena’s ductwork system. Subcontractors on the project sued for their cost to perform extra work to remedy alleged design deficiencies. Post-trial relief is currently being sought by the architectural firm (including a motion for judgment notwithstanding the verdict, a new trial, or a new trial on the damages issue).

Whether or not such post-trial motions are granted, however, the case raises the very real issue as to architectural responsibility versus contractor coordination responsibility, especially in fast-track projects. This case highlights the risks to architects in failing to make their responsibilities and contractual limitations explicitly clear to both owners and contractors. The case also highlights the need to explicitly review shop drawings for coordination issues that might be present.

The case is Hunt Construction Group Inc. et al. v. City of Charlotte, North Carolina, and Ellerbe Becket Inc., case number 08-11915, in the Mecklenburg County Superior Court.

What is the “Economic Loss Rule” and how does it effect me?

Posted on by

You may wonder why you cannot recover for certain damages on a construction project. The answer, in all likelihood, is the Economic Loss Rule. The Economic Loss Rule is a rule of law that says, essentially, if you have a contract with another party, and the only damages you suffer are to the project which is the subject of that contract, then no negligence action can lie. Essentially, you are stuck with basic breach of contract principals and remedies.

The rationale for the economic loss rule is that where there is a contract, the parties are free to include, or exclude, provisions as to the parties’ respective rights and remedies. See, e.g., Hospira Inc. v. Alphagary Corp., __ N.C. App. __, 671 S.E.2d 7, 14 (2009), discussing the rationale behind the rule. The effect of the rule is that in those situations, parties are limited to their contractual remedies. (Another reason for a well-drafted contract!). No consequential, incidental, or other type claims can be made unless expressly provided for in the contract.

This rule does not apply if no contract exists between parties (a situation called “lack of privity”). The parties are free in that case to sue under a negligence theory.

For example, an architect may be sued by the general contractor or its subcontractors working on a construction project for economic loss foreseeably resulting from breach of architect’s common-law duty of due care in the performance of his contract with the owner. Davidson v. Jones, 41 N.C.App. 661, 255 S.E.2d 580 (1979).

Are there exceptions to the economic loss rule? Yep. Those exceptions are detailed in my next post.