Breach of contract
If one of the parties to a contract fails to perform as required, this may constitute a breach of contract. A breach may entitle the innocent party to make a claim for damages for the losses it has suffered.
If the breach of contract is serious (a material breach), then the innocent party may also consider that it is discharged from any further obligations under the contract.
If the breach is less serious, (a non-material breach, sometimes referred to as a default) the innocent party may make a claim for damages, but may not consider it is discharged from any further obligations under the contract. This prevents the innocent party from excusing their own performance because of a minor breach of just one part of the contract.
This is generally the position on construction contracts, where some works are likely to have been carried out, but one or more may remain undone, incomplete or defective. As building contracts are usually divided up into parts (divisible), and include a series of separate payments, this sort of partial failure would not allow the innocent party to excuse their performance, i.e. a failure in one part will generally only mean that the innocent party is not liable to pay for that part. Furthermore, if the works have been substantially performed, then they must pay for them subject to a claim for the parts that have not been performed.
On construction contracts, it is generally in the interests of both parties for the contract to continue and for the works to proceed irrespective of minor problems. Whilst damages for breach of contract may seek to put the innocent party in the position it would have been in had there not been a breach of contract, the delay and disruption caused, for example, by having to appoint a new contractor can far outweigh the difficulties of proceeding, albeit under difficult circumstances.
Construction contracts generally make provisions for the contract to be varied without there being a breach. Variations, extensions of time, claims for loss and expense, liquidated damages, and the defects liability period all provide for the contract to be varied or for problems to be rectified.
Where one party behaves in such a way that it indicates it no longer intends to accept its obligations under the contract, this is considered to be a repudiatory breach (or fundamental breach), allowing the innocent party to terminate the contract and to sue for damages. Generally the contract will set out what those breaches are, but they might include:
- Refusal to carry out work.
- Abandoning the site.
- Removing plant from the site.
- Failure to make payments.
- Employing others to carry out the work.
- Failure to allow access to the site.
- Failure to proceed regularly and diligently.
- Failure to remove or rectify defective works.
Where repudiation is considered to have occurred, the innocent party can either affirm that the contract will continue or accept the repudiation and so terminate the contract. In either case, they will have the right to claim damages. Either way, it is important that there is some sort of response, as inaction may be considered to be an affirmation of the contract.
Assessing the seriousness of breaches of contract depends on the particular circumstances and terms of the contract. For example, if a contractor failed to carry out the work to an agreed timetable, this might be considered a relatively minor issue on some projects, whilst on others it could be an extremely serious breach. The innocent party must be careful therefore to establish that there has actually been a material breach before considering that the contract is terminated, otherwise they might find themselves in breach of contract.
This can lead to disputes, where for example, the client refuses to make payment, claiming that the contractor has failed to perform, whereas the contractor contends that they are not performing because the client has refused to make payment.
An anticipatory breach (or anticipatory repudiation) occurs when one of the parties to the contract declares to the other that they do not intend to perform their obligations under the contract.
The contract may also allow termination under other circumstances, such as frustration or insolvency. It may also allow termination for ‘convenience’, but this may leave the terminating party open to significant claims by the other party. See: Termination for more information.
Rescission is a process of returning both parties to the position they would have been in had they not entered into the contract. This might be appropriate for example if there is a serious error in the contract.
The term irremediable breach refers to a situation where there is a defect in the works for which the cost of rectification is unreasonable relative to the nature of the defect. Under these circumstances the contract administrator may issue a certificate of making good defects, with a deduction relative to the amount by with the value of the works has been reduced by the defect.
NB: The Construction Act now gives contractors the right to suspend performance for non-payment.
[edit] Related articles on Designing Buildings Wiki
- Alternative dispute resolution.
- Breach.
- Causes of construction disputes.
- Civil procedure rules.
- Concurrent delay.
- Consequential losses.
- Construction Act.
- Contract claims.
- Contract negotiation.
- Cooling off period.
- Defects.
- Delay analysis.
- Derogation from grant.
- Dispute resolution boards.
- Extension of time.
- Fair payment practices.
- Frustration.
- Guarantees.
- Housing Forum seeks unity over suspension of works.
- Injunction.
- Legal action.
- Litigation.
- Liquidated damages.
- Liquidated v unliquidated damages.
- Loss and expense.
- Pre-action protocol for debt claims
- Proprietary information.
- Remoteness.
- Repudiation.
- Subletting.
- Termination.
- Variations.
Featured articles and news
Apprenticeship announcement by the Prime Minister
Welcomed but with call for more actionable detail.
Heat pump announcements, what homeowners need to know
An 'ultimate guide to heat pumps' from a heating company.
Construction contract awards reach £7.1bn in February
Their highest level in seven months.
The journey to sustainability in heritage
Research is the key to better understanding.
Heritage approaches to adaptation, mitigation and loss.
Bridging the gap between policy, finance and installation.
Development on brownfield land
Definition, background, policy and the latest consultation.
With the Design Framework for Building Services.
Retrofit of Buildings, a CIOB Technical Publication
Pertinent technical issues, measures and the roles involved.
ECA joins HSE campaign to support mental health
Working Minds’ five simple steps based on risk assessment.
Mental health in the construction industry
Mental health issues in brief with related articles.
Transitional arrangements, Building Control and the BSR.
For pre-October buildings with substantial progress by April.
Why quality counts in domestic ventilation systems
From products, to systems to the installation.
Empowering the Future with CIOB Academy
Lifelong learning, upscaling, and reskilling for the built environment.