Construction Dispute

Construction law includes all aspects of the building, from the initial bidding process to the negotiation and drafting of contracts for the project’s building. Construction laws are also relied on when there is a dispute between parties.

What are Construction Contracts?

A construction contract is an agreement between parties to complete a construction project. As with any contract, upon entering into the agreement both parties are obligated to perform according to the terms of the contract. If a party breaches the contract, the non-breaching party can sue for damages. Damages are money used to compensate a party for the loss due to the breach of contract.

When the owner of a property and a contractor enter into a construction contract, disputes may arise from that contract. This is especially true if a contractor engages in construction fraud.

The contract usually sets forth the options for resolving disputes arising from a construction contract. It outlines the duties and obligations of the contractor and the property owner. Typically, the construction contract will provide for remedies if one of the parties does not perform as promised.

What are Construction Delays?

One of the most common disputes over construction contracts is when there are delays in project completion. Often, this is for reasons out of the property owner’s and the builder’s control. One of the most common causes of construction delays is weather. Although a project can be planned around the usual weather for an area, there can always be changes to the weather that make it impossible to continue working, at least for a time.

The issue is whether or not an owner can recover from the contractor for the construction delay. Some delays may be considered excusable, and others may not.

What are Excusable Delays?

In most cases, a construction contract will outline specific instances where a contractor is excused for a delay in the project. Delay is generally excused in instances where the delay is caused by:

• An act of God, such as a tornado or unexpected weather
• Issues with the individuals working on the project or other labor problems
• A change to the project or design that the owner requests
• Other causes that the contractor could not foresee or control

Typically, the construction contract provides the contractor with a time extension for an excusable delay. The contractor is usually required to provide the owner with notice of the delay and the cause of the delay.

What is the Acceleration of a Construction Contract?

An acceleration of a construction contract occurs when the owner of a property compels a contractor to complete a construction project ahead of its scheduled time frame. An acceleration may cause an increase in the contract price due to the contractor’s new cost or labor requirements.

What is Constructive Acceleration?

If an owner refuses to provide a contractor with an extension of time for an excusable delay or when the builder makes a reasonable request for an extension of time, the doctrine of “constructive acceleration” arises. This doctrine holds that even if the owner did not specifically request it, the contractor is forced to accelerate the construction of the project to meet the owner’s demands for time of completion.

In this case, the contractor may recover for any additional expenses incurred due to the owner’s refusal to grant an extension of time. However, under the constructive acceleration doctrine, the contractor must accelerate the performance and incur extra costs to recover.

What are Mechanic’s Liens?

A mechanic’s lien is a contractor’s method to ensure that the property owner pays for the services and materials used.

An individual or company employed to improve a piece of property will attach a financial claim – a lien – to the property they are hired to improve. The lien serves as a hold on the property. The property owner will be served with notice of the lien. The lien will be recorded at the county or city recorder’s office and become attached to the property’s title. The property cannot be sold without paying off the lien first.

The contractor can initiate a court proceeding to enforce the lien if the property owner fails to pay for the services or materials. This often results in a court proceeding forcing the sale of the property to pay for the services or materials.

How are Damages Computed in a Construction Contract?

If the contractor fails to complete the project, there are two different ways to compute damages: (1) measuring the “cost-to-complete” and (2) measuring the “diminution-in-value.” A court will determine which method should be used based on the facts of each specific case.

As the name suggests, the cost-to-complete method of calculating damages requires the contractor to pay damages for what it will cost to have someone else complete the project. Courts typically use this method when the breaching party’s performance has been defective or incomplete.

The diminution-in-value method of calculating damages requires the losing party to pay for the difference in the value between the project and the project specified in the contract.

For example, suppose a home is built in breach of the contract terms. The market value of the finished house would be calculated, as well as the house’s market value specified in the contract using the diminution-in-value method. The builder would be required to pay the difference between the two. This method is generally only used when substantial contract performance has occurred.

Are There Limitations to the Recovery of Damages?

Several limitations may apply to recover damages in a breach of construction contract case. These may include:

• Whether the damages were foreseeable
• Whether the damages can be calculated with certainty
• Whether the non-breaching party met its obligation to mitigate damages

The party that breached the construction contract must have been able to foresee reasonably that the damages would occur from the breach. For instance, if a contractor refuses to complete a home, it would be reasonably foreseeable that the owner would be required to live elsewhere until the home is completed. The contractor may then be liable for the expenses incurred by the purchaser’s having to live elsewhere.

The damages must be proven with certainty. For example, if an individual claims they suffered emotional distress because their dream home was not completed, that is not a type of damage that can be made with reasonable certainty. It is unlikely that such damages will be awarded.

The non-breaching party must mitigate damages so as not to amplify the loss. For example, suppose a builder is constructing a home, and the purchaser cancels the contract before the home is finished. The builder is not permitted to finish the home and then attempt to recover damages for finishing the entire house. Although the homeowner is in breach of contract, the builder must minimize the damages as much as possible.

Should I Consult an Attorney about My Construction Dispute?

Yes, if you have any construction disputes, it is essential to have the help of an experienced construction dispute attorney. Construction projects are typically subject to strict deadlines, so you should contact a lawyer immediately. In addition, every state has different laws regarding the procedures and deadlines for filing a breach of construction contract claim, so you should choose a local lawyer.

An attorney can review your construction contract, assist you in collecting the necessary evidence to prove a breach and represent you in court, if necessary. An attorney can also help you if a mechanic’s lien has been filed to prevent the property from being sold.

If you are a contractor or subcontractor, an attorney can help you adhere to the strict deadlines for filing a mechanic’s lien. An attorney can also review your construction contracts to ensure they comply with local laws and protect your rights.