Clearly written and fulfilled contracts are the backbone of the construction industry, outlining expectations, timelines, and quality standards. They also include measures for what to do when one party fails to meet the contract terms, which can lead to financial and legal remedies for those harmed. Below, the Texas construction lawyers of MehaffyWeber discuss the important steps construction companies can take when addressing a potential breach of contract.
Breach of Contract Affects More Than Just the Contract’s Signatory Parties
When one party breaches a construction contract, the issue causes a downstream ripple of delays and increased costs. It can negatively impact other contracts, potentially putting your construction company in breach of those vendor and customer agreements. A breach can put strain on your employees to keep the project moving forward through new avenues while you attempt to correct the problem.
By including clear language in contracts, you can minimize these issues. With clauses that address the specific actions each party can take in the event of a breach, you encourage proactive discussion when issues arise. With the help of an experienced construction attorney, you can draft and negotiate contracts that protect your interests and give you options before going into litigation.
Common Types of Construction Contract Breaches
Your options when a breach occurs depend on its severity and whether the other party can easily rectify the problem. In some instances, you may still be able to seek compensation while the project continues. In others, you may need to terminate the contract and file for damages from the at-fault party.
Material Breach
A material breach is the most severe and often results in project failure or extreme delay while you negotiate with a new provider. Examples of a material breach include using substandard materials that result in structural issues, abandoning the work, failing to pay, or failing to adhere to state building codes.
Suffering a material breach gives you room to reform the agreement to new terms or rescind the contract. As a final step, you also may be able to file a claim for damages to meet your losses and secure additional compensation if you can demonstrate the harm was intentional. In addition, material breaches put the offending party at risk of additional lawsuits by customers and other vendors injured by the breach.
Minor Breach
In a minor breach, the project can continue because the harm only affects a smaller aspect of the contract terms. This might occur if there is a short shipping delay, materials substitution, or minor cosmetic issues. If the breaching party can repair the problem without substantially affecting the final product, quality, or deadlines, you have the right to compel them to do so. You may also be able to sue for partial damages in some circumstances.
Anticipatory Breach
Anticipatory breaches occur when another party indicates, by words or actions, that they won’t fulfill the contract terms. They may explicitly refuse to do so (repudiation), engage in disabling acts, or delegate work when the contract forbids it. Other examples are notification of non-payment, loss of access to the building site, and issues with subcontractor performance.
Anticipatory breaches differ from minor breaches in that it must be clear that the other party does not intend to honor their agreement. These go beyond simple weather delays or switching out components. You can initiate a search for a replacement contractor to continue the project or demand “adequate assurance of performance” from the vendor if they intend to breach. Finally, you may be able to file a lawsuit to recover damages.
What to Do When a Breach Occurs
It’s essential to act quickly once you suspect a breach may happen or has happened to gain an overview of potential actions. Ideally, you and the other party can review the contract to reassert the terms and find a solution, often through alternative dispute resolution (ADR) methods. If this doesn’t work, you can consult with a construction contract lawyer to discuss more aggressive avenues.
To give yourself the strongest standing for negotiation or litigation, follow these steps:
- Document what happened: Collect emails, invoices, and other material indicating the events leading up to the breach and communications afterward. If necessary, your attorney can file motions to require all parties to preserve evidence.
- Review dispute options: Closely examine the contract to determine the appropriate path to resolve the dispute, including termination rights and damage limitations.
- Communicate the breach: Notify the other party of the suspected breach, including details of the action, how the contract applies, and your remedy demands. You may be able to correct the issue at this stage before moving to litigation.
- Correct the breach: If possible, work with all involved parties to address the problems and fix them. You may be able to work within the terms of the contract or reform it to apply to the situation.
- Seek damages or fulfillment: If you litigate the claim, you can seek financial relief for your losses, recover previous payments, or demand specific performance under the contract terms.
Other avenues include rescission, which returns both parties to the state they were in prior to the contract. You will also likely need to notify other parties to the contract about the breach and the actions you’re taking. Finally, you should communicate potential impacts from the breach to other subcontractors whose relationships may suffer harm from the initial issue.
Consult With a Construction Attorney if You Suspect a Breach
Any time you believe another party may be in breach of a construction contract, it’s worth the time to speak with a lawyer who focuses on contract disputes and resolutions in that field. It’s vital to understand when you can take action and how.
A close review of the contract with a legal professional can often indicate the best path. Your attorney can also assist with crafting communications to notify others about the breach, protecting your position and rights within the contract terms. They can also represent you during negotiations about curing the breach or filing for damages.
Once you address the problem, your construction contract lawyer can suggest methods for revamping your processes to avoid similar concerns in the future. This may include more thorough contractor vetting, additional training to assist managers in spotting potential breaches, and adjusting contract language to further restrict breach risks.
MehaffyWeber Aligns With Your Construction Company’s Goals for Success
By working with our Texas construction contract lawyers, you can get the guidance you need to follow state and federal construction regulations, clarify your rights in contracts, and reduce the potential for breaches. We have a strong background in helping companies that perform commercial, residential, and industrial construction. Contact us to arrange a consultation and learn more about what we can do for you today.