ConstructionPro Week, Volume: 4 - Issue: 16 - 04/21/2015

Should Minor Deficiencies Defeat Contractor Payment Rights?

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?

 

COMMENTS

As always, this becomes a debate over the value of the work, or lack of work, in dispute. AIA contracts clearly allow the Owner to be allotted restitution for incomplete, sub-par quality, and missing work (proper written notices notwithstanding), but coming to an amicable resolution to the dollars is always the real issue.
Posted by: Thomas W. Perkins, PE - Friday, April 24, 2015 10:42 AM


Contract provisions include "code compliance". Failure to comply may be viewed by some as only a "technical" violation but those failures, though viewed by some as "minor" can delay a C of O. Often the only leverage an owner has is to withold payment. What say you Bruce?
Posted by: ADAguy - Friday, April 24, 2015 11:04 AM


substantial completion is not final completion, even if there are minor repairs and or incomplete items. If the contractor refuses to perform then the owner will have to hire another contractor to complete the work which may result in warranty gaps between the first contractor's work and the second contractor's work. This can get very costly for the owner
Posted by: Benny Bercovicz - Friday, April 24, 2015 1:30 PM


The value of the "minor repairs" or incomplete work should be assessed. Normally, the cost of a second contractor's work would be higher. If the 2% remaining can handle it then the owner & first contractor can discuss. But if the cost (second contractor) is greater, then the first contractor should agree first before the owner can let him go.
Posted by: Rom Vizconde - Friday, April 24, 2015 8:16 PM


 









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