Breach of Construction Contract

Most construction disputes begin with a surprise. And no job can astonish better than rehab work. So how do you stay out of disputes on repair jobs? Maybe you can’t. But a case decided earlier this month in Maine may be a good model for contractors on residential and light commercial repair jobs.

Chris Bond agreed to have Riley Woodwork remodel the Sebego Lake Rowing and Sailing Club in Standish, Maine. Before taking the job, Riley warned that the clubhouse was an old building – rotted floor joists and subfloor and outdated electrical system. Riley wrote what he called a “baseline” bid and added a caution about unforeseen problems. The job scope might change once work started. Riley estimated the baseline cost at $26,781. Bond signed a written agreement to pay more for approved extras.

That was a good beginning but not the end. Bond had another project for Riley, renovation of a condominium in South Portland. While work on the Sebego Club was still in progress, Bond had Riley start on the condo job – and even asked Riley to make that a top priority.

Two months later, Riley was about done with the condo. He requested final payment of $6,674. Bond admitted he owed the money but refused to pay until some additional work was done, about a day’s work, according to the trial transcript. Riley wanted to be paid first. Bond wouldn’t do it. The result was a general falling out between Bond and Riley.

Bond ordered Riley to stop work on both jobs. In Judge Walker’s words, “This refusal was the catalyst, along with a general pastiche of conflicting personality types.   . .” Riley pulled off both jobs and sent final bills. Bond refused to pay another dime. Riley recorded liens on both properties and filed suit to collect. Bond counter-sued, claiming faulty workmanship, late completion and violation of Maine’s Home Construction Contract Act.

At trial, the question was, “Who breached the contract, Riley or Bond?” The first to commit a material breach of contract is liable for damages. A material breach of contract is any "non-performance of a duty that is so material and important as to justify the injured party in regarding the whole transaction as at an end." Judge Walker concluded that Bond's failure to pay any amount on the final condo invoice was a material breach of contract. The only other issue was the amount to be awarded Riley in damages.

Riley was ready. He had the contracts, estimates, material receipts and time cards. Bond claimed Riley’s bills were inflated. The court found otherwise. Riley’s charges were “reasonable, necessary and customary” and supported by testimony at trial. The court awarded Riley $10,690.98 for Sebago, $8,062 for the condo plus interest and attorney fees, but less $300 for the last day of work on the condo.

Take-Aways from Riley v. Bond

Disputes are inevitable, especially on work in older buildings. So make a few precautions part of your business practice. It paid off for Riley and could for you too:

1. Caution that there could be extras.
2. Include payment for extras in your contract.
3. Keep good job records.
4. Be ready to sue when nothing else works.

The best way to vet potential disputes is with a good construction contract. You won’t find a better tool for drafting iron-clad agreements than Construction Contract Writer. The trial version is free.

Seven Ways to Avoid Surprises

Was there ever a construction project that went exactly as planned?

More often, you’re going to have a surprise, something unexpected – like a mistake in the plans or some site condition that requires extra work. Anything can go wrong on a job. And the result is nearly always the same – extra time and higher cost. No contractor is immune from surprises. But it’s easy to limit the damage when a surprise happens.

Contractors aren’t insurance companies. You shouldn’t have to make good at your own expense every time something goes wrong on a job. And you won’t with the right contract. Good contracts allocate risk between the owner and the contractor. Courts enforce contracts the way they’re written. If you write the contracts for your jobs, here are seven good ways to avoid losses from the unexpected.

Make your bid define the job. Describe the materials you plan to install, not the finished job. For example, if you’re replacing a roof, the bid might show "Remove and replace 18 squares of composition shingles and 80 linear feet of flashing.” If sheathing has to be replaced (a surprise), that’s at extra cost. Don’t quote a price simply to “re-roof with composition shingles.” That could be interpreted to include whatever sheathing is needed.

Exclude specific site conditions. Even the best site inspection isn’t going to uncover every potential surprise. Your contract should exclude mold, structural pests, hazmat, defective work by others, subsidence, unsuitable soil, rising water, zoning restrictions, setback requirements, HOA rules, severe weather and concealed obstructions such as water, power, waste, drain, communication and gas lines.

Exclude errors in the plans. Mistakes are common in plans and specs. Contractors aren’t licensed design professionals. You don’t have an obligation to find design flaws. Give notice when you spot a mistake. Then get an agreement on the cost of extra work.

Narrow interpretation of the plans. If the plans and specs don’t describe some detail or material, that detail or material is not part of the job. For example, a home plan that omits the roof is a plan to build a home without a roof.

Changes in the law. Anything extra required to conform to changes in law, code, ordinance or regulation is extra work to be done at extra cost.

Be prepared to prove the claim. Avoid disputes that begin “I said. . .” or “You said. . .” Keep a written record showing extra labor, material and equipment expense. Give the owner a copy as the extra work is being done.

Set the value of extra work. The contract should identify how charges for extra work will be calculated. The best choice is your “usual selling price.” The second best option is the cost of labor and materials plus your usual markup. Payment for extra work is due when that work is done.

Don’t take a loss every time there’s a surprise. Cover these seven points in your contracts. Using Construction Contract Writer makes that easy. The trial version is free.

Protect Yourself from Surprises

In construction industry, the unexpected tends to be expensive bad news. And with every surprise comes an obvious question, “Who’s going to pay?”

Owner: “Look, it’s not my fault. You should have known about this. I’m not going to cover for your mistakes.”

Contractor: “This is extra work – not part of the deal. I’ll do what’s required. But I have to charge extra.”

Every surprise has the potential to become an acrimonious dispute.

A Catalog of Surprises
The list of possible surprises on a construction project must be nearly infinite. But most of the surprises likely to cause a dispute fit in one of three categories:
• Mistake or omission in the plans – something the designer, architect or engineer didn’t consider.
• Differing site conditions – hidden or highly unusual conditions no one would have anticipated.
• Change in scope of the work – something discovered later, such as by the inspector.

Get Paid for Surprises
A good contract will resolve most disputes about what’s included and excluded. Point to a contract clause that covers the point in dispute and you’ve won. But I’ve never seen a construction contract that covers every possible surprise. You won’t either.

Federal public works contracts include a changed site conditions clause, giving the contractor a claim when there’s a surprise. That way, contractors don’t have to bid the worst case. They can bid what’s expected. Little or no contingency allowance is needed. That encourages more competitive bids.

But there’s clearly a better way to protect yourself. Limit the job to what’s in your bid or proposal. It’s not permitted on most public works contracts. But it’s perfectly legal in private contracts. Anything omitted from the bid is not part of the job, no matter what other contract documents say.

On a public works job, the awarding authority won’t even look at a contractor’s estimate. Submit a detailed estimate with your bid and the contracting officer will trash it – or consider your bid non-conforming. On a private job, nothing prohibits including a detailed estimate with your bid and having that estimate define the scope of work. Anything not in the estimate is not part of the job, period. The more detailed your estimate, the better you’re protected against surprises.

With a single stroke, you’ve eliminated nearly all risk due to surprises – whether a mistake in the plans, differing site conditions or a change in the scope of work.

When you have a choice, make your estimate define the job. It’s both legal and good contracting practice. None of the boilerplate contracts sold by national trade organizations include this important protection.

To see how your estimate can define the job, have a look at Construction Contract Writer. The trial download is free.