May 1, 2008

Colorado adopts the “active interference” exception to no-damages-for-delay clauses

By Tim Gordon

Tricon Kent Co. v. Lafarge North America, Inc. (Colo. App. 2008)

The Colorado Court of Appeals holds that no-damage-for-delay clauses are enforceable in Colorado, but that the “active interference” doctrine is a recognized exception to the enforceability of such clauses.

CDOT contracted with Lafarge for construction of improvements to a state highway, and Lafarge subcontracted the earthwork to Tricon.  Pursuant to its subcontract, Tricon was required to perform its work in accordance with the terms and conditions of the prime contract, including the general conditions, special conditions, drawings, specifications, and other documents.  As such, Tricon bid assuming it could rely on the contract documents.

One such contract document was CDOT’s project phasing plan.  Tricon claimed that the scope of its work changed as a result of Lafarge not scheduling and sequencing the work in accordance with the phasing plan, and requested additional compensation as a result.  Lafarge denied the claim, relying on a no-damages-for-delay clause in the subcontract.  Additionally, Lafarge back-charged Tricon for three days of liquidated damages.

The jury returned a verdict in favor of Tricon for the balance of its subcontract plus additional compensation for its claims.  On appeal, the Court of Appeals affirmed the judgment, holding that no-damages-for-delay clauses are enforceable in Colorado, but that they are to be strictly construed against the owner or up-stream contracting party.

More importantly, the Court of Appeals adopted the “active interference” exception to no-damage-for-delay clauses.  The Court of Appeals held that bad faith is not required for showing active interference.  Instead, in order to prove active interference, the claimant:

needs only to show that the defendant committed an affirmative, willful act that unreasonably interfered with the plaintiff’s performance of the contract, regardless whether it was undertaken in bad faith.  However, we further conclude that, while it is unnecessary to show bad faith or reprehensible conduct, active interference requires more than a simple mistake, error in judgment, lack of total effort, or lack of complete diligence.

One ambiguous part of the Court of Appeal’s decision is whether or not the trial court instructed the jury on the issue of active interference.  According to the Court, where the active interference doctrine is raised and the evidence is sufficient to warrant it, the jury should be properly instructed on the issue of active interference.  But there is no indication in the opinion that the jury in Tricon was actually instructed on that issue.  Nevertheless, the Court of Appeals held that “there was sufficient evidence for the jury to find that Lafarge’s actions constituted active interference with Tricon’s performance”:

This evidence included testimony that Lafarge (1) failed properly to schedule, sequence, and coordinate Tricon’s activities on the project; (2) ordered Tricon to proceed with its work knowing that 5L [another subcontractor] had not completed the retaining wall . . . ; (3) threatened Tricon with liquidated damages if it did not perform the out-of-sequence work; and (4) knew Tricon needed two lane openings for efficient performance of its work, yet failed to provide it with open lane access.

Note that C.R.S. § 24-91-103.5 bars no-damage-for-delay clauses in certain public works prime contracts.  The opinion does not include any discussion about whether or not this bar might apply to subcontracts on a public works contract.

Read the slip opinion

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