Most construction contracts are bilateral contacts, either between the owner or the owner’s agent and the prime contractor or between the prime contractor and subcontractors. In bilateral contracts the promises are reciprocal between the parties. One party promises to perform certain things for the other party’s promise to perform some other thing. In construction contracts, the owner promises to pay the prime contractor a certain sum of money for the contractor’s performance in building the structure. In addition, the owner also promises to provide adequate plans and specifications for the prime contractor’s use in constructing the structure. In exchange, the prime contractor promises to build the structure in accordance with the owner’s plans and specifications and in accordance with applicable building codes and regulations. Likewise, the prime contractor promises to pay a subcontractor for the subcontractor’s performance of its respective scope of work in accordance with the plan, specifications, codes and regulations. Every party from owner to supplier has a duty to perform specific acts and each party has a right to receive the other party’s promised performance.
It is very rare that a construction contract is fully performed without at least some modification or miscommunication occurring. Problems usually arise when one party does not fully perform their duty under the contract or one’s expectations are not consistent with the contract documents and they believe the other party is obligated to perform an act that is not required. Situations also arise when unforeseen conditions require changes to the work or cause delays in performance.
Breach of Contract
A Breach of Contract occurs when a party to the contract fails to perform, without excuse or justification, an act they are obligated to perform under the contract. However, alleging that a party has breached the contract does not make it so. The person accused of breaching a contract has an arsenal of effective responses to the allegation of breach, including: No Breach, compliance; No Breach, excuse; No Breach, justification; and, No Breach, terminated duty.
No Breach Compliance: The party accused of breaching a contract may argue that they are complying with the terms of the contract.
No Breach, excuse: The party accused of breach may argue their nonperformance was excused, and therefore they are not in breach of contact. A contractor may claim that there was some unanticipated or supervening event that prevents them from performing therefore, they are not in breach.
No Breach, justification: The party accused of breaching the contract may claim that even thought they are not complying with the terms of the contract, their nonperformance was justified by the other party’s breach of the contract, and therefore they have not breached the contract. In this case, the contractor may be justified in stopping work if the owner has failed to make payments in a timely manner or has not executed changes orders as required by the contract.
No Breach, terminated duty: The party accused of breach may also claim that even though they are not complying with the terms of the contract, their duty to perform the contract has been terminated, and therefore they have not breached the contract. In this instance, a contractor may not be required to perform the contract if the work cannot be performed to a change in the law or the loss of the building due to a casualty.
Alternatively, the party accused of breaching the contract and admit to breaching the agreement. Sometimes people breach a contract intentionally. In some instances the damages a person might have to pay for breaching a contract will be less than the cost of fully performing the contract.
Scope of Work
If the terms of the contract are in writing, the parties will refer to the writing to determine what each party is obligated to do. Oftentimes, a dispute arises when one or both of the parties do not agree on what is to be done. It is helpful when the writing clearly states the duties of the parties and there is no dispute. However, writings are seldom perfect. Therefore, it is very important that each party to a construction contract understands the “scope of work” that is to be performed by the specific contractor or subcontractor.
Frequently, subcontracts will contain a scope of work that states the subcontractor will provide all materials and labor necessary to complete the work required by the plans or under a specific section or sections of the specifications. In those instances, subcontractors often find themselves responsible for performing work that they did not contemplate performing. This leads to delays and potential disputes between the parties. The parties should endeavor to make certain that the scope of work to be performed is fully set forth in the contract. The scope of work should be as detailed as necessary to ensure that there are no misunderstandings regarding what is to be performed. Having a complete and accurate scope of work can be instrumental in avoiding unexpected change orders as well.
What happens when there is a delay in the work?
As a general rule, time is not of the essence of a building or construction contract in the absence of a provision in the contract making it so, the mere statement of a completion date in a construction contract does not make time of the essence. Thus, a failure to complete the work within a specified time does not, by itself, constitute a breach or terminate the contract. Rather, it may subject a contractor to monetary damages for the delay, also known as liquidated damages, usually in the form of a specific amount per day for each day beyond the scheduled completion date.
Delays by Subcontractors:
Under a contract between a subcontractor and a general contractor, the general contractor has an implied obligation not to delay the subcontractor and is liable to the subcontractor for his or her failure to take all reasonable measures to ensure that the subcontractor is not delayed. The delay of a subcontractor is oftentimes caused by the failure of another subcontractor to complete his or her scope of work in a timely manner. In this instance, it is generally the duty of the general contractor to coordinate the work of the subcontractors and avoid hindrances.
The general contractor is not liable for delaying the subcontractor when the delay is caused by unforeseeable conditions not under the control of the general contractor. Except in extreme cases, delays caused by bad weather are not typically unforeseeable. Rather, unforeseeable delays are things that are unanticipated by the parties or result from encountering unknown conditions, such as utilities not identified on plans or excessively hard digging conditions not reflected in a geotechnical report. In these instances, other parties may be responsible for any delay damages experienced by the subcontractor. An experienced construction law attorney should be consulted to evaluate any potential claims.
The general contractor will also typically have no liability to a subcontractor for delays caused by the owner, unless there is an actual provision in the contract providing for such damages. Such a provision in the subcontract agreement would normally be found where the subcontract price was based on the continuous operation by the subcontractor’s crew at the job site or where the subcontractor specifically provided that the transportation of materials to the site by the prime contractor was to be scheduled to avoid delays in unloading.
Delay by Owner:
If the contractor is prevented from performing the contract by the act or default of the owner or by the acts of person for whose conduct the owner is responsible, the delay occasioned is excused and the contractor will not be held liable for his or her noncompliance with the terms of the contract. This includes a delay caused by the wrongful withholding of monthly payments provided for in the contract.
Where the contractor is delayed by the owner, or the acts of persons whom the owner is responsible, the stipulation as to the time of completion becomes inoperative and the contractor is entitled to a reasonable time to complete the work. This is provided for by the issuance of a change order extending time. However, the contractor must make a claim for additional time at the time the delay occurs, as contracts usually preclude a claim for additional time when the contractor waits until near the end of the project to make the request. The contractor may be entitled to other damages as a result of a delay by the owner.
There may be other damages that result from an owner’s delay of the construction project and oftentimes owner’s will include provisions in contracts known as “no damage” clauses, that relieve the owner from liability for any damages caused by a delay. These provisions will generally be binding if the basic requirements of a contract are met. While a “no damages for delay” provision of a contract are generally binding, it will not typically be enforceable in instances of delays so unreasonable as to amount to abandonment of the project or for delays caused by the owners fraud, misrepresentation, concealment, or other bad faith or active interference. An attorney with experience in construction law should be consulted to evaluate whether or not delay damages will apply to a particular circumstance.
Changes to Work
What constitutes a change in the work?
Generally, when a person performs services, furnishes property, or expends money for another at the other’s request and there is no express agreement as to compensation, a promise to pay the reasonable value of the services or property or to reimburse for money expended is implied if the circumstances warrant such an inference. This rule applies to building and construction contracts. However, if the work is covered by the contract there can be no recovery for it as additional work.
To determine whether a construction contract requires work that the contractor claims to be an extra item, one must determine whether the work was extra and whether the contract made any provision for the type of extra work that has been performed. Extra work means work of a nature that was not contemplated by the parties and is not controlled by the contract.
Where the parties intend that the contractor must rely upon its own investigation, no recovery for extra work may be had absent a showing of fraud. Accordingly, a contractor is not entitled to additional compensation merely because a construction project was more expensive than anticipated, particularly if the contract contained a site inspection clause placing a duty on the contractor to estimate the cost of the work.
Likewise, if the contract makes the latest building code of the city a part of the specification for minimum requirement and provides that the contractor shall furnish without any extra charge any additional material and labor when required for compliance with the code, the contractor is not entitled to extra compensation for the installation of material complying with the code.
Before entering into any construction contract, It is always recommended that you have the assistance and expertise of an experienced construction law attorney.
Lump Sum or Fixed Cost:
A general contractor who agrees to complete a construction project for a fixed cost must generally absorb any losses resulting from unforeseen conditions. Where one agrees to do, for a fixed sum, a thing possible to be performed, he or she will not be excused or entitled to additional compensation because unforeseen difficulties are encountered. Once a contractor determines the price to be charged to an owner and enters into a written contract for that specific price, the contractor has the responsibility for any risks of rising costs or delays. However, there are certain circumstances where the owner is in a better position than the contractor to assess the site conditions the parties may place the risk of unexpected site conditions on the owner. An experienced construction law attorney should be consulted before entering into a Lump Sum or Fixed Cost contract.
A provision in a private building or construction contract that alterations or extras must be ordered in writing is valid and binding upon the parties and therefore, when there is no waiver, modification, or abrogation of the provision, no recovery can he had for alterations or extras performed or provided without a written order. In other words, a contractor who proceeds with work without procuring a written change order proceeds at his or her peril. Therefore, it is imperative that a contractor secure a written change order before beginning any additional work.
The Wright Law Group, P.C. has more than 20 years experience in construction law and is well equipped to assist you in handling your construction contract matters. Please call us at 702-405-0001 to schedule a consultation.