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Your options when a construction contract is breached

On Behalf of | Feb 26, 2024 | Construction Law

Your construction contracts are vital to keeping your construction business running. When a contract is breached the consequences can be devastating, delaying or derailing your entire construction project.

While some of your contracts may be oral, generally your contracts will be in writing, signed by both parties and detail the exact obligations of both parties.

Common terms in construction contracts include what work one party will do and how much the other party will pay for it. Other terms typically include the type of materials to be used, a deadline for the work to be completed by and any safety requirements or precautions that must be taken.

When one party fails to fulfil their obligations under their contract, they are in breach of the contract. When this happens, there are a few different ways you can handle the breach.

Informal resolution

First, it is usually best to try to informally resolve the breach. This can be as simple as having a conversation with the other party and figuring out a way to solve the problem.

Sometimes one party is technically in breach of the contract, but the reason is due to circumstances beyond their control.

For example, your contract could require a certain type of material to be used, but that material might no longer be available, causing a breach of contract.

A discussion about alternative materials could result in an agreement to use a different material, solving the breach problem.

A breach is sometimes the result of a simple mistake or accident. The contract might require work to be completed on the 15th day of the month and it might be completed on the 16th because one party got the date wrong.

You can both work out how you want to handle the one-day delay, such as modifying the total cost of the project.

Alternative dispute resolution

Informal resolution does not always work and you may need to move on to other options. If your construction contracts do not already contain an alternative dispute resolution clause, they should.

This clause requires parties to participate in alternative dispute resolution, such as arbitration or mediation, before pursuing any legal action.

You may be unable to solve the problem informally because one party has suffered damages and you cannot agree on a resolution. You might want to be paid for the damages while the other party may want a chance to fix the problem, or perhaps you disagree on the number of damages to be paid.

Mediation is essentially the same as informal resolution, only with the help of a mediator. The mediator listens to each side and provides guidance and suggestions for resolution.

Arbitration is more formal than mediation but less formal than a court proceeding. In arbitration, each side presents their case to an arbitrator or arbitration panel, who decides the outcome.

Courtroom litigation

When you cannot solve the breach problem through informal resolution or alternative dispute resolution, filing a lawsuit is your remaining option.

Before you file your lawsuit, it is important to know your chances of success and the likely outcome. A court could award money damages or specific performance, which is ordering the other side to perform their duties under the contract.

The award depends on the circumstances. Sometimes specific performance is not possible, so money damages might be the only option.