Construction Delays: How to Protect Your Rights
UPDATED: August 9, 2013
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Construction delays can cost not only time, but also money. So, when you enter into a building project, it is important to have a contract that outlines a deadline for completion as well as specifies what is to occur in the event of a delay. While the court may consider a delay in performance a material breach of a construction agreement, even if the contract does not specify a completion date, it is far better to clearly lay out the terms of your construction agreement to protect yourself.
Construction Law and Unreasonable Delays
When a contract does not specify a construction completion date, the court may consider an unreasonable delay to be a material breach. For example, in the case, International Production Specialists, Inc. v. Schwing America, Inc., No. 07-3632, 2009 Westlaw 276 7143 (7th Cir. September 2, 2009), the Seventh Circuit Court of Appeals determined that a 3 ½-year delay was a material breach of a construction agreement, even though the contract did not specify an end date. The Court based its decision on evidence, including project timelines, which indicated that the party commissioning the work had expected the project to take approximately 8 months.
In the Schwing case, the court specified that the party's expectations and the materiality of the breach of the agreement should be determined in light of the circumstances as a whole, including the potential for normal construction delays, who is responsible for the delays, and what benefits the parties to the construction contract could reasonably expect.
Protecting Yourself Against Delays
While the Schwing case resulted in Schwing being permitted to cancel the contract with the builders who weren't performing work in a timely or reasonable manner, this case is an extreme example. Not every single construction delay will result in a court finding a material breach without a specified finish date. To protect yourself under construction law, establish a clear deadline in your contract. The deadline should provide a reasonable amount of time to complete the project, allowing for the fact that delays can occur even when no one is at fault.
Define Substantial Completion
Typically, it is common for the contract to specify that "substantial completion" must occur by a certain date. You should also specify in this agreement what substantial completion means, such as stating that the project must be at least 75 percent completed. The contract should also include a clause that extensions can be given for unforeseen delays at the discretion of the person who commissioned the building project. This ensures that when something unexpected happens, the builder will confer with the owner regarding how to proceed and won't feel pressured to complete the impossible.
Adding a Liquidated Damages Clause
If a builder breaches a contract by not achieving substantial completion by the specified date, the builder can then be responsible for damages. In the event that damages cannot be specifically determined, a liquidated damage clause can be added to make clear in advance the penalties from the delay. Liquidated damage clauses are typically enforceable as long as the amount specified for damages is considered to be a reasonable assessment of losses rather than solely intended to punish the party in breach.
Owner Changes to the Project
When a contract specifies a date of completion, it is important for owners to know that if they make changes to the scope of the project or the work being done, the completion date may need to be altered as well. Typically, when a change is made after a construction contract is signed, this is referred to as a "change order," and the change order may specify a new completion date or a deadline extension.
In order to ensure that the construction contract contains the necessary language and clauses to adequately protect your rights, it is best to consult with an attorney who specializes in construction law.