Construction Disputes FAQs

1. What is a “lump sum” construction contract?

A construction contract in which the contractor agrees to build the project for a specified dollar amount. The contractor’s fees, profits, and overhead are included in the stated lump-sum amount.

2. What is a “cost plus” construction contract?

A construction contract in which the contractor is reimbursed for the actual costs to complete the project, plus a fee. The fee is generally some percentage of the cost of the work, designed to cover the contractor’s profit, overhead, etc.

3. What is a “guaranteed maximum price” construction contract?

A construction contract where the owner and the contractor do not have a set price for the construction project, but agree that the actual cost of the project is not to exceed a certain price. Often, the contractor’s fee is not included in the guaranteed maximum price, but is rather a calculated percentage of the actual cost of the project.

4. When can an owner terminate his contractor on a construction project?

Generally, an owner can terminate his contractor on a construction project for: 1) defective or non-conforming work, 2) the contractor’s failure to supply his subcontractors or suppliers, 3) the contractor’s violation of laws, ordinances or safety regulations, or 4) contractor’s delay in completing the project. In certain circumstances, the owner may be able to terminate the contractor for the owner’s own convenience.

5. What are the owner’s remedies against the contractor for the contractor’s default on a construction project?

Generally, once the contractor has defaulted on a construction project, the owner is entitled to 1) take possession of the project, along with unused materials, 2) complete the project, or 3) seek reimbursement for monetary damages incurred as a result of contractors default, including the cost of completion and/or delay damages

6. When can a contractor terminate a construction contract?

There are few instances where a contractor may terminate a construction contract prior to completion of his obligations. The most common, though not an absolute, is the owner’s failure to make payment to the contractor for work performed to date. However, a contractor should proceed cautiously and be sure to abide by any and all notice provisions in the contract related to notice of default as well as potential offsets by the owner for incomplete/incorrect work performed by the contractor.

7. What is the critical path method of scheduling a construction project?

The critical path is the chain of interrelated events on a construction project that runs from the first day until completion. The critical path sets forth the shortest period of time that the construction project could be completed, because certain events must be completed before other tasks can begin. Any delay in a critical path activity results in a delay to the completion of the project.

8. What is “substantial completion”?

Often, substantial completion is defined by the construction contract itself. However, the common definition of substantial completion is the point in time where the owner can occupy or utilize the project for its intended purpose. Often, a certificate of substantial completion will be issued by the architect of record on the project, if applicable.

9. What is an “excusable delay” versus an “inexcusable delay” on a construction project?

An excusable delay on a construction project is a delay that is attributable to circumstances beyond the control of the parties. Weather is often thought of as an excusable delay. If a delay is deemed “excusable”, the contractor is often entitled to an extension of time for performance and the contractor can be excused from liability to the owner for the additional time to complete. Inexcusable delays to a construction project are delays that are attributable to one or more parties on the project. Generally, the party-at-fault may be liable to the blameless party for costs incurred as a result of the delay.

10. What are “concurrent delays” on a construction project?

When two or more unrelated delays affect the progress of the project at the same time. This can include an excusable delay and inexcusable delay. Your construction lawyer in Raleigh NC will be able to clarify whether a delay is considered concurrent.

11. What are “liquidated damages”?

Liquidated damages are an amount stipulated in the construction contract that the parties agree is a reasonable estimation of the damages owing to one in the event of a breach by the other. In construction, this is generally seen as a dollar amount that is owed by the contractor to the owner, for each day the project is late. In order to be enforceable, a liquidated damage provision must constitute a reasonable forecast of the damages likely to actually result from the breach.

12. What monetary damages are the non-breaching parties entitled to, for a breach of construction contract?

The basic principle for monetary damages is that the non-breaching party is entitled to a monetary sum that would restore the non-breaching party to the position it would have been in, but for the breach. However, this recovery is generally limited to the monetary damage that is incurred as a direct and reasonably foreseeable result of the breach.

13. What are recoverable damages by a contractor for a delay?

A contractor’s recoverable delay damages often include 1) equipment/labor standby costs, 2) extended project overhead or 3) labor and material costs escalation.

14. What are recoverable damages by an owner for a delay?

An owner’s recoverable delay damages often include 1) extended construction administration, 2) lost rents or revenues, 3) extended construction loan interest and/or 4) liquidated damages.

15. What damages are available for defective construction?

Most often, the damages available for defective construction are either 1) “cost-to-repair” or 2) “diminution in value”. Cost-to-repair is the dollar amount necessary to restore or repair the defective work to the condition required to conform to the construction contract. In the event that the cost-to-repair the construction project is too high compared to the seriousness of the defect or otherwise prohibitive, the damages are limited to the difference between the value of the building/project as construed and its value had it been constructed conformably to the construction contract.

16. Are punitive damages available for the breach of a construction contract?

Punitive damages, which are designed to punish a breaching party as opposed to making the aggrieved party whole, are generally not recoverable for the breach of a construction contract.

17. Are construction projects covered by warranties?

Often, construction contracts will have express warranties, such as a warranty that the materials will be of good quality and the work will be conducted in a “workmanlike manner”. Additionally, construction contracts commonly include an obligation of the contractor to make repairs or to correct defects within one year of completion. In addition to express warranties, there are also implied warranties, depending on the nature of the project, such as the implied warranty of habitability that is seen in the residential context.

18. What is the statute of limitations for defective construction?

The statute of limitations is the time frame within which a potential claimant can file a lawsuit. In North Carolina, the statute of limitations for construction disputes is three years from the date when the aggrieved party knew, or should have known, of the issue or breach. Thus, in most instances, a potential claimant would have three years from the discovery of a defect within which they must bring a claim. However, be aware of the statute of repose.

19. What is the statute of repose for defective construction?

Similar to the statute of limitations, the statute of repose is a time limit barring the maintaining of a claim for defective construction. However, unlike the statute of limitations, which runs from the date of discovery of the defect, the statute of repose runs from “the last act or omission of the defendant giving rise to the cause of action or substantial completion of the improvement”. In North Carolina, the statute of repose is six years from the last act of the builder or six years from substantial completion.

If you have construction disputes that may require the assistance of an attorney or are engaged in construction litigation, please contact a construction lawyer in Raleigh NC at Hannah Sheridan & Cochran, LLP, at 919-859-6840.