The construction industry is no stranger to disputes and conflicts that may arise due to breaches of contract. These breaches, whether major or minor, can have significant consequences for all parties involved.
This blog introduces the types of breach, causes of breach, and the subject of damages within the construction industry and the legal aspects surrounding it.
The complexity of each facet underscores the value of a construction litigation attorney at every level of a project.
Types of Breach of Contract in Construction
Major or Material Breach of Contract
One of the most significant breaches occurs when a fundamental element of the contract is either not undertaken or not delivered as initially agreed upon.
Minor or Non-Material Breach of Contract
Minor breaches pertain to situations where the major aspects of the contract are delivered as agreed, but some smaller obligations are not fulfilled.
Anticipatory Breach of Contract
An anticipatory breach occurs when one party to the contract notifies the other that they will be unable to fulfill their obligations within the agreed timeframe.
Actual Breach of Contract
An actual breach happens when one party delivers their side of the contract improperly or incompletely, such as using substandard materials clearly inferior to those required by the contract.
Fundamental Breach of Contract
A fundamental contract occurs when the breach is so severe that the contract should be terminated rather than the innocent party seeking damages.
This type of breach occurs when one of the parties to the contract fails to meet obligations that were so fundamental to the contract that it prevented another party from upholding their end of the agreement.
Common Causes of Breach in Construction
On a large scale project, several factors can lead to a breach of contract including:
- Faulty Drafting of Contracts: Poorly structured contracts can lead to disputes, emphasizing the need for precise and comprehensive agreements.
- Defective Materials: Subpar materials can result in breaches, affecting project quality and deadlines.
- Schedule Issues and Delays: Delays in project timelines, often due to poor scheduling, planning, or monitoring, can create animosity and potential breaches.
- Failure to Perform: When one party does not fulfill its contractual duties, it can lead to significant disputes.
Understanding Damages and Compensation
In cases of breach of contract, the concept of “damages” plays an important role. Damages refer to financial compensation awarded to the injured party for losses or injuries incurred due to the breach.
The burden of proof lies with the injured party to demonstrate their loss. Courts typically aim to restore the injured party to the economic position they would have expected had the contract been fulfilled.
To establish liability and claim damages, a causal connection between the breach and the resulting loss or injury must be demonstrated.
Courts employ various tests to determine causation, such as the “but for” test, which assesses whether the damage would have occurred but for the defendant’s actions.
Remoteness of Damage
Remoteness of damage is a critical legal principle. It stipulates that liability exists only when the damage was reasonably foreseeable at the time of contract formation.
If a defendant could not have reasonably foreseen potential harm resulting from their actions, there may be no liability.
Liquidated Damages
Parties to a contract may agree to liquidated damages, which are predetermined sums specified in the contract to be paid in case of a breach.
Liquidated damages must be reasonable and reflect the legitimate interests of the parties. Excessive liquidated damages that amount to a penalty may not be enforceable.
Categories of Contract Damages
In construction cases, there are generally three categories of contract damages that can arise when parties to a construction contract encounter issues or breaches.
Damages for Defective Workmanship
Defective workmanship damages are typically associated with issues related to the quality and standards of the work performed by the contractor.
If the work performed by the contractor is found to be substandard, below the agreed-upon specifications, or not in compliance with industry standards or building codes, the owner or client may seek damages to compensate for the cost of correcting the defects.
These damages can include the cost of correcting or redoing the work, as well as any consequential damages that result from the defects, such as damage to other parts of the project, delayed completion, or additional inspection costs.
Schedule-Related Damages
Schedule-related damages, also known as delay damages or liquidated damages, are associated with delays in the construction project’s completion.
Construction contracts often include specific deadlines or completion dates, and if the contractor fails to meet these deadlines without valid excuses, they may be liable for schedule-related damages.
These damages are intended to compensate the owner for any financial losses or additional expenses incurred due to project delays. They are typically calculated based on a predetermined daily or weekly rate specified in the contract.
Damages for Failure to Perform
Also known as non-performance damages, damages for failure to perform occur when one party to the construction contract fails to fulfill their contractual obligations entirely.
This could involve a contractor abandoning the project, refusing to perform the agreed-upon work, or otherwise breaching the contract.
In such cases, the non-breaching party, usually the owner or client, may seek damages to cover the costs of finding a replacement contractor, completing the unfinished work, or any additional expenses incurred due to the breach.
It’s important to note that the specific terms, conditions, and remedies related to these damages can vary widely depending on the language and provisions of the construction contract.
Construction contracts often contain clauses that define how damages will be calculated, limits on liability, dispute resolution procedures, and other relevant terms.
In the event of a dispute, parties may need to rely on these contractual provisions and seek legal remedies through arbitration, mediation, or litigation to determine the appropriate damages.
Consult with a Litigation Attorney
Litigation attorneys have extensive experience managing contract disputes and determining the appropriate legal action when necessary.
The team of reputable attorneys at KPPB LAW can help you resolve legal challenges when addressing breach of contract claims. For more information or to discuss your case, contact KPPB LAW at 678-443-2220.