Contractors are not only responsible for performing their contracted work, but are also charged with keeping the owner and the subcontractors working together to bring the project to completion successfully. Given this, they are regularly the subject of legal disputes. For this reason, many could benefit from an understanding of the following top 5 contractor defenses available in New York.
- SUBSTANTIAL PERFORMANCE – If a court finds that, at the time of contractor’s termination that the owner essentially received the work bargained for, then the contractor has “substantially performed” the contracted work, despite any percentage of work claimed incomplete or number of defects. If the contract has been substantially performed, then the contractor would be entitled to the contract price, plus any extras, less the cost of repairing or correcting any defects.
- INTERFERENCE – Although the contractor must work with and accommodate the reasonable requests of the owner or architect on the project, what happens if this level of input rises to a level which inhibits the contractor’s ability to work? It is not always clear exactly when this level of interference is reached. But, typically, where an owner has impeded the contractor’s ability, the contractor will not be blamed for the delay caused by the owner’s interference. Some levels of interference may even justify the contractor’s termination of the contract. This may vary from project to project, given the level of owner interference determined to justify the contractor in terminating the agreement.
- IMPOSSIBILITY / FORCE MAJEURE – Impossibility is a legal theory that would provide a possible defense to a contractor for failure to perform under the contract. This protection exists where the contract is truly rendered impossible to perform. The courts have established, however, that this does not include relief for a contractor seeking to escape performance for a difficult or unprofitable project.
Similar to Impossibility, Force Majeure excuses performance where reasonable expectations of the parties have been frustrated due to circumstance beyond the parties’ control. It should also be noted that a party running into financial hardship does not amount to grounds for non-performance of the contract.
- NON-PAYMENT– Although logic might suggest that if the contractor is not being paid, the contractor can cease working under the contract. In New York, however, that may not necessarily be the case. If an owner fails to make timely progress payments, the contractor may consider the contract terminated by the owner and seek damages. A dispute resolution clause in the contract, however, may obligate the contractor to continued performance while the dispute is being administered. Simply ceasing to work under these conditions could amount to the contractor being liable to the owner.
- WRONGFUL TERMINATION– When an owner wrongfully terminates a contractor, this serves as a defense to any claims by the owner seeking damages from contractor or contractor’s surety for excess costs to complete. A contractor terminated wrongfully is entitled to its lost profits, value of work performed and start-up expenses. Should the contractor wrongfully terminate its contract or otherwise abandon the job, the contractor loses its right to claim lost profits and the owner is entitled to claim its costs to complete.
Contractors in New York are provided the above, and other possible defenses to claims made against them. Whether any of the above or other defenses may apply to your situation will vary from project to project and may depend on underlying facts.
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John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: [email protected] or (631) 608-1346.
This is a general information article and should not be construed as legal advice or a legal opinion. The content above has been edited for conciseness and additional relevant points are omitted for space constraints. Readers are encouraged to seek counsel from a construction lawyer who has experience with Long Island construction law for advice on a particular circumstance.