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Defendant was awarded a subcontract to perform concrete work on plaintiff's home. Defendant was to complete the job "per specifications." During the work, defendant claimed to have encountered difficulties (i.e., inadequate access to the site, improper excavation and numerous changes to the blueprints) for which he was not reimbursed. After defendant had worked for nearly a year on the project, the general contractor ordered defendant to cease activity and remove his equipment from the jobsite.

Defendant recorded a mechanic's lien against plaintiff's property. In response, plaintiff filed a lawsuit against defendant alleging damages for overpayments, extra costs to complete defendant's work by another contractor and extra costs to pay defendant's supplier to release a lien on plaintiff's property. Defendant counterclaimed, seeking compensatory and punitive damages for breach of contract and for breach of the implied covenant of good faith and fair dealing.

The Supreme Court affirmed the trial court's ruling dismissing the punitive damage claim on grounds that state law precluded an independent tort action for breach of the implied covenant of good faith and fair dealing. Punitive damages cannot be recovered for breach of contract; only contract damages. McKie v. Huntley, 620 N.W.2d 599 (S.D. 2000).

The Supreme Court, however, reversed the trial court's dismissal of defendant's damage calculations on the basis that such damages were speculative. Defendant had used a total cost approach in calculating damages. The Supreme Court found that once liability and causation were established by a preponderance of the evidence, the total cost method of calculating damages "should be applied where the nature of the particular loss has made it impossible or highly impracticable to determine damages with a reasonable degree of accuracy and where the loss is substantiated by reliable evidence."

The court further held that there are cases when "the total cost method is the best and only means of quantifying the impact of changes on a contractor." The court concluded that "based on the nature of this construction contract dispute, with its many reciprocal allegations of delay and nonperformance," the total cost approach could be a reasonable approach to calculating damages.

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