“Imagine you and your business partners are working on a construction deal and have agreed to uphold your part of the contract. But what if someone fails to do so?” This situation describes what a breach of contract means: a scenario where people’s trust and confidence in a business relationship diminish.
In this informative work, learn about the various kinds of contract violations in construction, their practical ramifications, potential legal consequences, and how to make better judgements.
What is a ‘Breach of Contract in Construction’?
When the business parties have signed their contract, everyone involved is expected to honour the commitments and follow the agreed-upon terms. These terms may outline duties, including managing payments, providing products or services, or completing assigned tasks. A contracting party fails to meet the terms of the agreement if they do not carry out their obligations under the contract.
Common breaches in construction include:
- Delivering defective or substandard work.
- Missing payment deadlines.
- Delaying project completion without valid reasons
To prevent disputes when they arise, you need to have a well-drafted and detailed contract. Since the parties will be transparent, a detailed contract often resolves disputes by clarifying responsibilities and protecting all parties involved to avoid misunderstandings.
Two Types of Contract Breaches
1. Major (material) contract breaches
In construction, some breaches of contract can lead to significant consequences. When one party fails to carry out an important part of the contract, it is termed a material breach. These issues may disrupt the project’s progress as well as its successful completion.
Parties to a contract may dispute whether a breach is material. A contract may identify specific behaviours as a substantial material violation. If the situation is unclear, a court may have to determine what is fair.
Examples of Material Breach:
- Ignoring the agreed-upon project plans.
- Using low-quality materials instead of those specified in the contract.
- Not paying as agreed in the contract.
2. Minor (non-material) contract breaches
Not all contract breaches are serious. While even small deviations technically count as a “breach of contract,” non-material breaches usually don’t have a major impact on the overall project. These minor issues might cause frustration but typically won’t derail the job.
Examples of Non-Material Breaches:
- Using a different brand of material than specified, as long as the quality is comparable.
- Arriving slightly late to the job site.
- Small colour variations that aren’t very noticeable or significant.
Common Causes of Breaches in Construction Contracts Include:
Construction contracts can be lengthy and complicated, particularly for major projects. A well-written contract should address potential concerns and explain how to resolve them. However, three common conditions frequently result in violation of the contract.
- Defective Performance
Workmanship disagreements are widespread and can result in lengthy and costly disputes. However, a slight mistake or change in the plans does not always result in a major breach. If the problem is trivial and readily resolved, it may not be worth fighting over.
- Schedule and Delay Issues
Construction is a methodical process in which every task is dependent upon its predecessor. The weather is one of several factors that can impact the schedule. Delays may not constitute a violation of the contract, even when they are undesirable. The terms of the contract will dictate this, particularly if there is a “no damages for delay” clause.
- Failure to Perform
This is simple: not doing your part can lead to a breach. Construction is a process, and if one party fails to do its responsibilities, it can cause problems for everyone and result in significant harm.
Potential Remedies for Breach of Contract
When a contract is breached, the non-breaching party (party not at fault) may be entitled to the following legal remedies:
1. Damages
The most popular remedy for contract violations is damages, which are typically economic. There are various methods for calculating damages, and the amount can vary depending on the circumstances.
For a breach, there are three primary categories of damages:
- Compensatory damages help the harmed party recover any genuine losses incurred.
- Punitive damages are intended to compensate if the breaching party’s actions were malicious or intentional.
- Liquidated damages are those specified within the contract for various breaches, particularly relevant when exact losses are difficult to determine.
2. Rescission
Rescission terminates the agreement and attempts to restore all parties to their pre-agreement circumstances. This remedy is popular as it does not require the parties to continue collaboration.
3. Reformation
Reformation differs from rescission in that it does not cancel the contract entirely but rather alters it. The contract is “reformed” to reflect different duties and obligations than those in the original agreement.
4. Specific Performance
Specific performance is not used often. It forces both parties to fulfill the contract as if the dispute never occurred. This remedy is usually used for special materials or services that only a specific party can provide. Courts generally avoid forcing parties to work together after a breach because the relationship may already be too damaged. But it can still happen in some situations.
How to File a Breach of Contract Claim?
Not every disagreement constitutes a breach; some may simply require legal action. First, review the contract; it may recommend suggest boards or mediation. Recovering damages frequently requires bringing a lawsuit, but doing so is expensive and dangerous. Attempting to settle initially is preferable. There is a cap on the amount you can claim, although small claims court can assist with lower sums. You will probably require legal assistance if small claims court is not an option. Representing yourself isn’t ideal, and LLCs or corporations may not be allowed. A lawyer can review your case and guide your next steps.
Addressing an Allegation of Breach of Contract
There’s no definitive answer to the question, “How should I respond?” because several factors affect how you should react to a breach of contract.
The crucial factors to think about are:
- Is there a real contract violation?
- Does the breach pose a significant or minor problem?
- How soon will it be possible to rectify the breach?
- What is the cost of the breach?
- Who was responsible for the breach?
Regardless of the circumstances, two fundamental ideas remain relevant:
Can a disagreement over construction payments result in a contract violation?
Like all contract conditions, payment terms are a part of the contract. A complex situation may arise when payment problems result in a breach because one party may consider that there is more flexibility with regard to payments. A contract violation may result from nonpayment. However, one side may decline to pay if they believe the agreement was broken.
Failure to make the agreed-upon payment could be considered a violation unless the contract permits withholding payment. A major violation does not necessarily mean that you should quit your employment or initiate a lawsuit right away. Stopping work could worsen the problem by committing a breach on the part of the unpaid party as well. Resolving the issue with minimum impact is usually the best course of action. Escalating the conflict can be the next step if necessary, but it shouldn’t be the initial option.
Can a mechanic’s lien be filed without resulting in a contract breach?
Submitting a mechanical lien typically does not result in a contract breach for the person submitting it.
However, a mechanical lien might put pressure on the customer, general contractor (GC), or project owner to pay. Certain agreements, such as lending or development contracts, demand that the property be free of liens.
A lien issued by a subcontractor might compel higher-level parties to resolve the issue either by eliminating the lien or bonding it.
Conclusion
Contracts are made specifically to be effective and to provide comfort to all parties. Nevertheless, there are instances in which they are broken, and a way to address a failure to fulfill commitments must be established.
Even though it is not against the law, a contract is hard to break and must be upheld unless all parties agree to do so. The penalty for noncompliance may already be specified in the contract. Instead, a solution may need to be sought, which may mean that the party who violated the agreement is compelled to follow through on its initial commitment.