A construction contract is an agreement between two parties for a construction project. Upon agreeing on a contract, both parties are obligated to perform the promises made in the contract. If one party breaches the contract, the other party can sue for damages. Damages refer to a sum of money used to compensate a party for the loss suffered as a result of the breach of contract.
Damages are computed in two different ways in construction contracts. Both measures are valid, and a court will decide which measure to use based on the situation.
- Cost-to-complete – This measure requires the losing party to pay damages to replace or complete the project the parties agreed upon. Courts ordinarily use this measure when the breaching party’s performance has been defective or incomplete.
- Diminution-in-value – This measure requires the losing party to pay for the difference in value between the completed project and the project specified in the contract. For example, a house is built in breach of the contract terms. The market value of the finished house and the house specified in the contract would be calculated, and the builder would have to pay the difference between the two. This measure is generally used only when substantial performance of the contract has occurred.
The non-breaching party can still recover other types of damages. Some of the more typical ones include:
Several limitations apply to recovery of damages for a breach of a construction contract:
- Foreseeable damages – The breaching party must be able to foresee that the damages will likely occur. For example, if a builder refuses to finish a house, it would be a foreseeable fact that the buyer would have to live elsewhere until the house is finished. The builder might then be liable for the buyer’s expenses in living somewhere else.
- Certainty – Damages must be proven with certainty. For example, claiming you suffered emotional distress because your "dream house’" was built wrong is not measurable. As a result, no damages will likely be awarded.
- Duty to mitigate – The party suffering loss has a duty to not amplify the loss. For example, a builder is constructing a house when the other party cancels the contract. The builder cannot finish the house and then recover damages for building the entire house. Although the other party is in breach of contract, the builder needs to minimize the damages as much as is reasonably possible.
If you think you are entitled to damages related to a construction contract, a business attorney can ensure you recover everything that you are owed. If you are being sued for damages, an attorney can ease the amount of damages you have to pay.