By Bruce Jervis
The doctrine of “substantial performance,” also known as “substantial completion,” is deeply seated in the common law. It holds that one should not be completely deprived of payment under a contract simply because the contract performance was less than perfect. The doctrine pertains to many types of contracts, but it is most frequently applied to construction contracts.
If a construction project is fit for occupancy and use for its intended purpose, the contractor has substantially performed. The project owner cannot use minor, correctable deficiencies to deny contract payment. The contractor is entitled to payment of the contract balance, although the owner may take a set-off for the estimated cost of bringing the work into full compliance with the contract requirements.
The doctrine of substantial performance was recently applied to protect the payment rights of a residential renovation contractor. The homeowner refused to pay based on incomplete or imperfect interior finish work. Yet, the contract was 98% complete and the home was being occupied and used. The contractor could not be denied payment altogether.
Despite the broad and longstanding recognition of this doctrine, many project owners continue to rely on minor deficiencies in the work to justify excessive withholding and even complete nonpayment. What has your experience been in this regard?