Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

© 2015 Cengage Learning Engineering. All Rights Reserved. 1

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Introduction to Remedies
 Primary function of remedies is to compensate
the injured party in a dispute.

 But, this can get very complicated once we

get down to the details of each dispute.

 Courts need to balance the objective of fully

compensating the injured party with
determining what can be traced back to the
breach, in light of that party’s duty to
minimize losses.
© 2015 Cengage Learning Engineering. All Rights Reserved. 2
Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Types of Remedies: Overview

 Declaratory judgment: Declaring the

parties’ contract rights.
 Specific performance: Ordering the
defendant to do something.
 Injunction: Ordering the defendant to stop
doing something.
 Money award: Awarding a designated
amount of money or “damages.”

© 2015 Cengage Learning Engineering. All Rights Reserved. 3

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Types of Remedies: Declaratory

Judgment, Specific Performance and
Injunctions

 Personal orders or commands from a judge.

 Failure to comply is punishable by a citation
for contempt of court, as well as possibly fines
and/or imprisonment.
 Actions for a declaratory judgment ask the
judge to evaluate the parties rights in light of
given facts.
 Common in some insurance disputes.

© 2015 Cengage Learning Engineering. All Rights Reserved. 4

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Types of Remedies: Money Awards

 Most common type of remedy in construction
disputes.
 Different formulas for assessing money
awards:
 Benefit of the Bargain – most common;
 Reimbursement;
 Restitution.
 Other factors:
 Interest;
 Lawyer fees.

© 2015 Cengage Learning Engineering. All Rights Reserved. 5

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Money Awards:
Benefit of the Bargain

 Goal: Put the injured party in the same

financial position they would have been in,
had the other party performed its obligations
(not breached the contract).

 Most common method for calculating damages

in construction disputes.

© 2015 Cengage Learning Engineering. All Rights Reserved. 6

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Money Awards: Reimbursement

 Goal: Restore the injured party to the

financial position it had before entering into
the contract (such as reimbursing for
expended labor).

 More rare in construction disputes.

© 2015 Cengage Learning Engineering. All Rights Reserved. 7

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Money Awards: Restitution

 Goal: Similar to Reimbursement, restore the
status quo before the contract.

 BUT, an action for restitution is for when

compensation under the contract itself is not
available.

 Quantum Meruit & Unjust Enrichment

 Preventing unjust windfalls to one party.

© 2015 Cengage Learning Engineering. All Rights Reserved. 8

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Money Awards:
Other Factors

 Interest on the money award may be added in

order to compensate for lost use of funds
when significant time has passed between the
breach and judgment.
 Attorney fees: “American rule,” contract
provisions, and statutory rules.
 Litigation costs.
 Very rare: emotional distress and punitive
damages.
© 2015 Cengage Learning Engineering. All Rights Reserved. 9
Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Limits on Recovery (1 of 2)
 Causation: defendant must be a substantial
factor in bringing about the loss – a
complicated determination when many
entities are involved in a construction project.
 Reasonable certainty in determining extent of
damages, no mere speculation.
 Unforeseeable losses.
 Plaintiff’s duty to mitigate – the doctrine of
avoidable consequences.

© 2015 Cengage Learning Engineering. All Rights Reserved. 10

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Limits on Recovery (2 of 2)

 Inherent difficulties in determining lost profits,

especially for new businesses.

 Clauses in the contract may limit recovery or

prescribe certain remedies:
 Limitation-of-liability clauses;
 Liquidated damages clauses;
 Consequential damages clauses.

© 2015 Cengage Learning Engineering. All Rights Reserved. 11

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Focus on Specific Cases:

Contractor vs. Owner
 Possible claims include:
 Refusal to award contract to successful bidder;
 Refusal to allow commencing construction;
 Wrongfully terminating during performance;
 Failure to pay;
 Committing acts that increase cost of performance
for the contractor.

 Remedies will depend on what stage the project is

at (unstarted, partially completed, completed).

© 2015 Cengage Learning Engineering. All Rights Reserved. 12

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Contractor vs. Owner:

Project Never Commences

 If a contractor is awarded a remedy for a

project that never commences, the remedy
would be contractor’s expected profit on the
job.

 Remedy  Contract price - Cost of

performance

© 2015 Cengage Learning Engineering. All Rights Reserved. 13

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Contractor vs. Owner:

Project Partially Completed

 Again, the goal is to put the injured party in

the same position as if the contract had been
performed.

 Remedy  Contract price – Cost of completion

– Progress payments received.

 Serious breaches may lead to a restitution

claim.

© 2015 Cengage Learning Engineering. All Rights Reserved. 14

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Contractor vs. Owner:

Project Completed

 Contractors who have fully performed their

obligations but have not been paid fully are
entitled to the unpaid balance and any proved
losses.

 Site chaos and productivity-related disputes

are very common.

© 2015 Cengage Learning Engineering. All Rights Reserved. 15

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Contractor vs. Owner:

Project Completed
 Depending on the case, contractors could be
awarded for:
 Delay damages for extended overhead;
 Loss of productivity and efficiency;
 Idleness and underemployment of facilities;
 Increased cost and scarcity of labor/materials;
 Stopgap work;
 Maintenance;
 Supervision;
 Bond and insurance premiums;
 Others…

© 2015 Cengage Learning Engineering. All Rights Reserved. 16

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Contractor vs. Owner:

Actual Costs and Recordkeeping

 Accurate, detailed records are very important

for determining damages and remedies with a
high degree of certainty (more likely to
recover if you can show clear records of the
loss).

© 2015 Cengage Learning Engineering. All Rights Reserved. 17

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Contractor vs. Owner:

Home Office Overhead Costs

 Home Office Overhead includes many tasks

that are not easy to attribute to one project
(office rent, clerical salaries, advertising,
etc.).

 Uncertain idle time, unabsorbed indirect costs

and the Eichleay formula.

 See AIA A201-2007, 15.1.6.2.

© 2015 Cengage Learning Engineering. All Rights Reserved. 18

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Contractor vs. Owner:

Productivity Loss

 Measured Mile Method.

 Industry / Trade Productivity Studies.

© 2015 Cengage Learning Engineering. All Rights Reserved. 19

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Contractor vs. Owner:

Total Cost

 Last resort: A rough comparison of actual cost

with what a project should have cost.
 Only sometimes allowed. Requirements:
 Impossible or highly impractical to determine
losses accurately;
 The contractor’s bid was realistic;
 The contractor’s actual costs were reasonable;
 Contractor not responsible for added expenses.

© 2015 Cengage Learning Engineering. All Rights Reserved. 20

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Focus on Specific Cases:

Owner vs. Contractor

 Possible claims include:

 Contractor’s unjustified failure to start or finish;

 Failure to abide by specifications;

 Unjustified delays, failure to complete the

project on time.

© 2015 Cengage Learning Engineering. All Rights Reserved. 21

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Owner vs. Contractor:

Project Never Commences

 Remedy: benefit of the bargain plus any

reliance damages.

 Remedy  Market price of the work - contract

price.

© 2015 Cengage Learning Engineering. All Rights Reserved. 22

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Owner vs. Contractor:

Project Partially Completed

 Remedy is the extra cost to get the project

finished.

 BUT, must consider higher costs of a

successor contractor brought in to pick up and
complete the work.

© 2015 Cengage Learning Engineering. All Rights Reserved. 23

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Owner vs. Contractor:

Defective Performance

 Two main methods for calculating remedies

for defective performance:
 Cost of correction (preferred);
 Diminished value (value of properly completed
project – value of defective project).
 Each method has pros and cons, and courts try
to balance these with the concept of economic
waste (see Youngs v. Kent).

© 2015 Cengage Learning Engineering. All Rights Reserved. 24

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Owner vs. Contractor:

Delays

 Delays are a very common source of disputes.

 Remedy is compensation for lost use, as

measured by rental value.

© 2015 Cengage Learning Engineering. All Rights Reserved. 25

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Single Recovery Rule

 An injured party cannot recover more than it
has lost.

 Owner and architect are typically considered

one entity in claims by a contractor.

 However, owner claims against the architect

and contractor may be for different injuries
and thus compensated separately.

© 2015 Cengage Learning Engineering. All Rights Reserved. 26

Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Summary

 The most common and relevant remedy in

construction disputes is money damages.

 The underlying goal in every calculation for

money damages is to put the aggrieved party
in the position they would have been in had
the contract been performed, or in some
cases, had the contract never been entered
into.
© 2015 Cengage Learning Engineering. All Rights Reserved. 27
Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

© 2015 Cengage Learning Engineering. All Rights Reserved. 28