It is common for construction workers to be hired for a specific job and time.
Nevertheless, there are many times when general contractors have multiple projects and a limited number of workers. Invariably, this leads to many projects being delayed. Employers have added liquidated damages provisions to contracts that enable them to impose reasonable fines for each day, week, or month a contractor is behind schedule.
What is a Breach of Contract?
A breach of contract may occur when a party to a valid contract has failed to fulfill their side of the agreement.
For example, the terms of a contract guide the parties on what they must do and how they should do it to maintain their promise. In the event that a party breaches the contract, the non-breaching party can take legal action and file a lawsuit against them.
A breach of contract can be partial or complete. In addition, a court will determine whether the breach was substantial or only minor. By doing so, the court can determine the damages for which the breaching party should be liable.
What are the Ways You Can Breach a Contract?
There are three main ways in which a party can be held liable for breach of contract. This includes when:
- There is an anticipatory breach: Often referred to as anticipatory repudiation, this type of breach occurs when the breaching party tells the non-breaching party that they will not be fulfilling the terms of their contract. Once the other party is notified, they can sue for breach of contract.
- A party has committed a minor breach: A minor breach of contract happens when a party fails to perform a small detail of the contract. In this case, the entire contract has not been violated and can still be substantially performed. This also comes up when there is a technical error with the contract (e.g., a wrong date, price, or typo within the terms of the contract).
- If there is a material or fundamental breach: These are the most common types of breaches cited as the basis of a breach of contract action. This is when the breach is so substantial that it essentially cancels the contract because it renders performance by either party impossible.
Contracts can also be breached if they are fraudulent, illegal, unconscionable, or contain a mistake of fact in the terms. There may also be conditions unique to each contract, which specify when a party’s actions can be considered a breach.
Moreover, state laws and the type of contract (e.g., lease agreement, sales contract, government contract, etc.) may indicate other ways to breach a contract.
What Should You Do If the Contract Has Been Breached?
If a party knowingly breached the contract, they need to take the necessary steps to fix the breach immediately. Ideally, the party should correct its mistake before the other party becomes aware of the breach, or at least before the other party files a lawsuit.
If you are responsible for a breach of contract, you should take the following steps:
- In the event of a breach, a breaching party should re-read the contract and find the section detailing what the parties can do: In a contract, for instance, a clause may state that the agreement has been terminated, and there is no way to resolve it. The contract may stipulate that a party has a certain time frame in which to fix the problem before filing a lawsuit against the non-breaching party.
- After the party discovers that they cannot completely fix the breach, they should speak with the non-breaching party in good faith: If the issue turns into a lawsuit, this can help the breaching party appear more favorable to the court. Furthermore, the parties may resolve the breach independently without a court’s intervention.
- Lastly, the breaching party must find another way to meet the agreement’s requirements: In this way, the court will see that the parties tried to resolve the issue cooperatively before resorting to legal action. The court may be able to resolve the parties’ issues more quickly if these steps are taken.
Alternatively, a non-breaching party to a contract may file a lawsuit against the breaching party.
The non-breaching party can take several steps before filing a claim, including:
- The non-breaching party should also re-read the contract: While reading, they should be on the lookout for clauses that say what to do in the event of a breach, whether there is a liquidated damages clause contained in the contract, and if the breaching party has a certain amount of time in which they can try to fix the breach.
- Second, it would be in the non-breaching party’s best interest to give the breaching party a chance to resolve their mistake: If they find that they cannot fix the issue, but are willing to compromise in a way that fulfills the non-breaching party’s needs, then it is beneficial for both parties to come to an agreeable solution and not involve any legal action.
- Conversely, the non-breaching party is not required to agree to a remedy that does not fully resolve the breach or does not adequately compensate them for their losses. To make up for any damages suffered by the non-breaching party, the non-breaching party should consider filing a lawsuit.
- Finally, once all other options have been exhausted, then the non-breaching party should file a lawsuit with the court: Before filing, they should collect any relevant documents that will prove the other party breached the terms of the contract and should have a copy of the contract on hand as well for the court.
What Are Liquidated Damages?
It is common for construction workers to be hired for specific jobs and periods. Nevertheless, there are many times when general contractors have multiple projects and a limited number of workers. Invariably, this leads to many projects being delayed. Employers have added liquidated damages provisions to contracts that enable them to impose reasonable fines for each day, week, or month a contractor is behind schedule.
What Should I Do if I Have Signed a Liquidated Damages Provision?
Liquidated damages provisions in contracts are generally binding unless they are unreasonably punitive in nature. This means that if the fine for late work is egregious or so disproportionate to the work being done, it will not be upheld in court.
How Should I Determine a Reasonable Liquidated Damages Provision?
In order to prevent undue delay, employers of contractors should incorporate a liquidated damages provision into their contracts. When a contractor falls behind, it is important to determine the right amount of periodic losses (by each day, week, or month) and assign those damages to the contractor. An employer’s situation must be considered in each case.
The liquidated damages provision usually compensates an employer for late work.
How Can I Determine when a Liquidated Damages Provision is Punitive?
There are several options available to contractors who believe liquidated damages are punitive and unduly harsh. There are several options available, including:
- Calculate the amount of damages: This will enable a contractor to determine the amount of damages assessed versus the cost of completing the job. It might not be feasible to continue working if the penalties are excessive.
- Ask if the employer intended liquidated damages to be punitive: If an employer intended the damages to be punitive, it would not be valid in court.
Should I Contact an Attorney?
An experienced business attorney might be able to assist a contractor or employer regarding liquidated damages provisions. An attorney can assist employers in drafting reasonable damages provisions that are not punitive but compensatory. On the other hand, a contractor has an incentive not to enter into an agreement that may contain liquidated damages.
