There are many ways a project owner or contractor can breach a construction contract. The following is a list of the six most common types of claims a contractor may assert against an owner or a subcontractor might make against a prime contractor:
1. Payment claims: One very common dispute is where the owner fails to timely pay the prime contractor or the prime contractor does not pay a subcontractor on time. Cash flow is very important in construction. If the owner does not timely pay the prime contractor, then the prime contractor may have difficulty paying its subcontractors and the subcontractors may not be able to pay their sub-subcontractors and/or suppliers.
Many times, payment disputes turn on whether the owner had a valid reason for withholding funds from the contractor. For example, if the contractor has submitted a payment application for deficient work, then the owner should not have an obligation to pay for that work. But if it turns out that the work was not deficient, then the owner may have breached the contractor by not timely paying the contractor.
2. Change-in-scope claims: There are also many disputes about the scope of work for which the contractor is responsible. If the contractor is required to perform work that was not required under the original contract, then the contractor should be paid for that work. The owner’s failure to pay for that work may be a breach of contract.
3. Delay claims: If a project takes longer than expected due to unforeseeable reasons beyond the contractor’s control, then the contractor may have a delay claim against the owner. Typical delay-claim damages include extended general conditions, home office overhead, and financing costs.
4. Disruption claims: A claim for disruption is different from a delay claim because a disruption claim does not require the contractor to prove that its work at the project was extended. Instead, the contractor has to show that something unanticipated at the project impacted its work in manner that caused the contractor to be less efficient than expected.
For example, if the owner has other contractors working in the same area and the owner changes the schedule of those contractors’ work in a way that makes another contractor’s work less efficient, then the impacted contractor may have a disruption claim. Damages for a disruption claim may include increased job-site labor, equipment, and material costs.
5. Acceleration claims: If a contractor is entitled to additional time to complete a project but the owner refuses to grant the contractor the additional time, the contractor may have an acceleration claim. Since the owner is, in essence, requiring the contractor to assign additional labor and equipment to speed up its work and complete it by the original completion deadline, the contractor may be entitled to more money for accelerating its work. For more information on acceleration claims, take a look at this post.
6. Termination claims: If a contractor commits a material breach of contract (e.g., fails to complete a project on time), an owner might terminate the parties’ contract. Likewise, a prime contractor might terminate a lower tier subcontractor’s contract. The termination of a contract must be based on good grounds and solid evidence. Typically, that means that the contractor’s breach must be significant. If the termination was improper, then the terminated contractor may be entitled to any additional labor, equipment, and material costs for which the owner has not paid.
The above six claims are the ones that you will most commonly see in construction payment-related disputes. There are nuances to each type of claim and different ways to go about proving each of the above claims. There are also different methods for pricing a contractor’s damages under each claim.
If you have any questions about the above contractor claims, please do not hesitate to send me an e-mail.
For more on these topics, follow me on LinkedIn and subscribe to this blog.