Contributed By Peckar & Abramson, P.C.
Nationally, the most common form of construction contracts are published by The American Institute of Architects (AIA). There are nearly 200 forms and contracts that comprise the AIA Contract Documents, and cover a variety of types of projects and relationships. AIA Contract Documents are widely used on private building construction projects. They can be purchased online through the AIA in bundles or single forms in electronic or paper format, and can be modified to fit a particular project’s needs. A newer form of contract that has achieved wide acceptance is ConsensusDocs® published by a coalition of associations representing different elements of the design and construction industry including the Associated General Contractors of America (AGC). ConsensusDocs® publishes more than 100 contracts and forms that can be used on a variety of projects. They also can be purchased electronically and edited using MS Word® and are accessible online.
Public owners throughout the United States tend to use their own forms of contract. Federal government contracts are a stand-alone set of documents and are governed by the Federal Acquisition Regulation (FAR) and a myriad of related procurement rules. Each of the 50 states, and other US territories, has their own form of prime contract and procurement laws and rules. Design contracts and subcontracts in public works also vary across the jurisdictions.
The US does not have specialist construction courts. However, a contractor performing a federal construction contract may proceed with its dispute in a court that has a concentration in construction contract disputes. Under the Federal Claims Act, a contractor has the choice to challenge a contracting officer's final decision in the US Court of Claims (USCFC) or before a Board of Contract Appeals (BCA). The USCFC is the single and central court in which contract claims brought against the federal government are heard. A BCA is a quasi-court within the federal agency (eg the Corps of Engineers) that hears disputes resulting from the issuance of a contracting officer's final decision. Federal agencies engaging in construction typically have had their own BCA. Some states also have special courts that hear claims brought against that state. For instance, the New York Court of Claims is the only court that can hear a contractual or other claim brought against the State of New York. Some states and municipalities have administrative tribunals or contract dispute resolution boards that hear certain contractual disputes including construction claims.
Contracts will be interpreted based on both common law and applicable statutes that vary from state to state, with some common themes across the various states and the US federal government. There is no nationwide contract law, although transactions involving the sale of goods are generally standardised through most jurisdictions' adoption of the Uniform Commercial Code. Federal law and regulations such as the Federal Acquisition Regulations will apply to federal contracts.
Generally, for a legally binding contract to exist there must be an offer, acceptance, consideration, mutuality of obligation, competency and capacity, and, in certain circumstances that will vary by jurisdiction, a written instrument executed by the party to be charged. US courts will enforce a binding contract pursuant to its terms, and only in limited circumstances will a court look outside the four corners of the document to determine its intent. Courts will impose an implied duty of good faith and fair dealing in the performance and enforcement of a contract. There is no bright-line rule or single definition of good faith. The implied covenant of good faith and fair dealing will not override an express term of a written agreement.
In most jurisdictions within the US, the conduct of the parties will be considered only to determine whether or not a breach occurred. A common law doctrine known as the “parol evidence rule” generally prevents a party to a written contract from presenting extrinsic evidence to explain or clarify or add to the written terms of a contract that appears as a whole. If an ambiguity exists, or the terms are incomplete, in certain circumstances a court may look to the parties' conduct to construe the terms. Where the parties to a contract specifically state that the written instrument is the full and final expression of their agreement (ie the writing is an integration), other written or oral agreements that were made prior to or simultaneous with the writing are inadmissible for the purpose of changing the terms of the original agreement.
If there is a fully integrated agreement following a letter of intent, the letter of intent cannot be used to vary the terms of the final agreement. If a final agreement is not reached, and a party seeks to enforce the terms of the letter of intent, a court will look to the terms of the letter of intent to determine if the parties intended to be bound. If the parties have clearly expressed an intention not to be bound until their preliminary negotiations have culminated in the execution of a further agreement, US courts typically will not enforce the letter of intent and will consider the letter of intent a mere agreement to agree. Before enforcing a letter of intent, courts will examine whether the agreement contemplated the negotiation of further agreements, if the consummation of those agreements was a condition precedent to a party’s performance, and if there are terms that remain to be negotiated. The enforceability of a letter of intent should be given close attention in the context of pre-bid construction agreements.
Some people, like legal minors and the mentally ill, are always considered to lack the legal ability or capacity to enter into a contract. If they enter into a contract, the agreement is considered to be voidable. But when dealing with organisations, including corporations, limited liability companies and partnerships, in the context of commercial transactions, the main restriction on the ability to contract is authorisation. Business organisations may only act through an authorised representative. In certain circumstances, the authorisation must be express and in writing, and in others it may be implied. In the absence of authorisation or the capacity to enter into a contract, the agreement will be considered void or voidable.
Assuming the business organisation acted with authorisation, the terms of the agreement will generally be enforced without regard to fairness or unequal bargaining power, except when the organisation contracts with an individual. Agreements with individual employees and consumers may be interpreted differently from agreements with other businesses. Unconscionable or deceptive business practices will be considered when dealing with individuals. Unfairness may lead to particular clauses in an agreement with an individual being stricken as void as against the law or public policy, while other clauses are enforced. Savings clauses are often written into US contracts and provide that, should a court void a particular clause, the remaining provisions remain enforceable.
The US does not have an Unfair Contract Terms Act or similar law that applies to commercial transactions.
The time to bring a claim varies from state to state. One must look to each individual state’s governing statute to determine the time to commence an action for breach of contract or other claim. For instance, New York has a six-year statute of limitations for a standard breach of contract action, and a four-year statute of limitations for the breach of a contract involving the sale of goods. Some states have different statutes for different types of agreements. California has a four-year statute of limitation for a breach of a written contract but a two-year statute that applies to oral agreements.
Most governmental entities have additional statutes or regulations that limit further the time to commence an action, or that require a written notice of claim as a pre-condition to suit. For instance, a breach of contract action against the State of New York must be brought within six months of the accrual of the cause of action. Before commencing an action against the City of New York, a written notice of claim must be filed and the City must be given at least thirty days to review and adjust the claim.
In most US states, parties to a contract may shorten the applicable statute of limitations, but they cannot extend it. In those jurisdictions where shortening the time limit is permitted, the agreement must be in writing and may not be so short as to make it impracticable for a party to commence an action. Texas, Washington, Arizona and some other states have statutes that expressly prohibit any agreements to limit the time to sue to a period less than a particular number of years (eg in Texas the time cannot be shorter than two years). At the time of writing, other states, including Florida, Alabama, Idaho, Mississippi, and South Dakota refuse to enforce any agreements shortening the applicable statute of limitation.
Although parties to a contract may not be able to extend a statute of limitations, they may be able to enter into a “tolling agreement” by which they agree to waive or suspend the right to raise the statute of limitations as a defence to a claim. A tolling agreement is an independent contractual agreement and can be used to extend the time to commence an action past the normal statute of limitations.
Some US jurisdictions have a statute of repose that, in contrast to a statute of limitations, is designed to bar actions after a specified period of time has run from the occurrence of some event other than the injury that gave rise to the claim. For instance, New Jersey has a statute of repose that provides that an architect with construction administration responsibility cannot be sued for defective work more than ten years after the first temporary certificate of occupancy was issued. This is critical because the statute of limitations may not start to run until the time that the defect was known or should have been known, and could be a period of time longer than the ten-year statute of repose.
The time to commence an action for property damage, personal injury or wrongful death will also vary by jurisdiction. For instance, in California, the time to sue for damage to personal property is three years, and two years for personal injury. In the District of Columbia, the time to sue for damage to personal property or for personal injury is three years, and only one year for wrongful death.
Most US jurisdictions, but not all, have adopted the Uniform Commercial Code, which applies to the sale of goods and related breaches of contract and warranty. In many states the time to sue for breach of contract or warranty related to goods is four years.
A duty of good faith and fair dealing will be considered in the interpretation and enforcement of a contract. Whether an obligation to act or negotiate in good faith will be implied depends on the jurisdiction. In a recent New York case, a binding exclusivity clause in an otherwise non-binding term sheet survived summary judgment as a possible agreement to negotiate in good faith following expiry of exclusivity. In a recent Delaware case, the court held that the failure to negotiate fully based on a non-binding but detailed term sheet could result in full damages as if the parties had actually signed the final deal.
Considering that the US is made up of numerous jurisdictions, careful consideration should be given to making an explicit choice of governing law in a preliminary agreement. The location of the parties, the locations of negotiations, and the location of the construction project should be considered. Some states will enforce agreements to negotiate in certain circumstances (eg California, Delaware, Illinois and New York) while others often refuse to enforce agreements to negotiate at all (eg Michigan, Texas and Virginia).
In most jurisdictions in the US, the only formal requirements of a contract are that it evinces an offer, acceptance, and mutuality of obligation for consideration. All US jurisdictions have some form of a statute of frauds that requires that certain types of agreements be in writing. For instance, New York requires writings for a contract for the sale of real estate, goods for a price of USD500 or more, or that cannot be performed within one year of the contract being made.
Given that contracts may be oral, courts will look to the written exchanges between the parties, and conduct, to determine if an agreement has been reached and what its terms are, if any. Letters of intent that specifically state that they are preliminary and subject to the creation of a more formal agreement will generally not be enforced. The intent and the conduct of the parties will be examined, so it is best to spell out the parties’ intentions in any written exchange and to note whether or not a more formal agreement is intended.
Generally, in the absence of a written agreement to the contrary, a construction contract need not be in writing, so the conduct of the parties may be examined. Unless an offer specifically limits the form of acceptance, beginning performance may constitute acceptance. Even if a party does not subjectively intend to be bound, if its actions support the conclusion that it has accepted the offer, it may be bound to accept the contract.
As noted above, if a letter of intent is executed, but a formal contract is not finalised, the court will first look to the terms of the letter of intent to determine whether or not a party is entitled to any payment or damages. Even if there is no written agreement to pay, a court may look to the parties’ acts. There may also equitable and statutory rights to recover.
In one New York case, the court determined that a letter of intent between a construction contractor and owner was a binding agreement. The language of the letter of intent evidenced the parties’ intent to be bound despite the use of “subject to” language in the letter.
In another New York case, a subcontractor entered into a formal agreement with a contractor to perform certain construction work on a project, but the contract contained a clause that said it was expressly conditioned on the owner’s acceptance of the subcontractor to perform work on the project. The subcontractor began preparatory work in advance of the owner’s approval. The owner then rejected the subcontractor as unqualified and directed the contractor to find another subcontractor. The subcontractor’s claim for the cost of the preparatory work, including shop drawings, and for lost profits, was dismissed because a condition precedent to the formation of the subcontract – the owner’s approval – had not been met.
In some US jurisdictions, recovery may be had on the doctrine of promissory estoppel without a formal contract. This doctrine allows recovery on a promise made without consideration when a party relies on the promise, the reliance on the promise was reasonable, and the promisee relied on it to his or her detriment. In certain circumstances, when there is no express limit on the terms or use of the proposal, courts have held proposers to the terms of their proposal based on this doctrine.
Rights to payment may also exist under quasi-contract equitable theories of recovery. In most US jurisdictions, if no contract is formed, but one party justifiably acts and performs, the party that performs may recover under the theory of unjust enrichment or quantum meruit.
Most states also have statutory rights to recovery, such as a lien right. For instance, in New York, a contractor or subcontractor or supplier has the right to file a lien for the value or agreed price of labour, material, equipment or services provided for the benefit of the real property or public improvement.
In the absence of a latent ambiguity, US courts will not look to extrinsic evidence or imply a term or obligation. The courts will look only within the four corners of the written agreement for its terms. Generally, US courts will not consider extrinsic evidence or change terms to reflect its own notions of fairness and equity or to avoid circumstances that the parties have not protected themselves against. When the language is clear and unequivocal, the plain language of the agreement will bind the parties. When the language is held to be ambiguous, the fact-finder (a court or jury or arbiter depending on the forum) hearing the dispute may consider extrinsic evidence as to the parties’ intent or to understand an ambiguous or incomplete term.
Terms may be implied when there is a statute that expressly addresses the issue. For example, a sales contract will be interpreted to include an implied merchantability (ie that the goods will be usable and serve the reasonable and expected purpose.
In the US, entire agreement clauses are typically referred to as a merger or integration clause and, as in the United Kingdom, will be enforced to exclude references to prior oral or written statements, representations or warranties. In some US jurisdictions, the merger clause will not exclude reference to implied terms or warranties. It is rare to find a commercial construction contract in the US without a merger clause.
Exclusive remedies clauses are used but are not common in construction contracts in the US, except to the extent that a liquidated damages clause may be considered an exclusive remedy for delays in completion of a project.
Most courts in the US consider remedies to be cumulative in the absence of contrary contract language. Cumulative means that the non-breaching party is permitted to pursue simultaneously all available remedies (contract remedies, monetary damages, equitable relief, etc). It is common to see clauses that specifically state that the non-breaching party is free to pursue all remedies, with the understanding that at the end of the dispute a court generally will not allow the non-breaching party to be made more than whole.
The most common exclusive remedies clause in construction contracts is a liquidated damages clause. Most US jurisdictions will not permit the non-breaching party to recover a liquidated amount and actual damages for delay or another breach.
Assuming no writing exists between the parties to determine what, if anything, will be paid for the work in place, US courts will typically turn to the equitable doctrines like quantum meruit to set the amount. A court may determine the reasonable value of the work in place provided that the defendant was enriched, the enrichment was at the plaintiff’s expense, and the circumstances are such that equity and good conscience require defendants to make restitution. Note that an owner that has no contractual relationship with a subcontractor typically will not be held liable to the subcontractor even in equity in the absence of an express promise by the owner to pay the subcontractor. A public owner typically will have no liability without an express agreement to pay for construction work, labour, material or services.
Assuming a contract is to be implied by law, a court will not impose a price. It will look to the writings between the parties to determine the reasonable value of the work, or will look to the actual costs incurred or expert testimony to determine the value.
Mandatory payment terms vary by jurisdiction. Most jurisdictions, and the federal acquisition regulations, have some form of prompt payment act that requires payment within a specified time after the work is in place and an invoice for that work is submitted and accepted. Some jurisdictions limit the amount of retainage that may be withheld. Others create trust fund obligations that require payments downstream from owner to contractor to subcontractor and suppliers, and that these trust funds be used to pay for the labour performed and material and equipment installed before overhead or other expenses are paid or profit distributions made.
Federal, state and local procurement laws will vary based on the amount of the contract, but not based on what may be defined as a construction contract. For the most part, most public procurement laws require competitive bidding of some form for contracts above a set dollar amount. The amount of the contract and the particular type of bidding will vary from jurisdiction to jurisdiction.
The ability to limit the timing of payment, and risk of non-payment, varies by jurisdiction.
A pay-if-paid clause provides that a general contractor is not required to pay its subcontractor unless and until it receives payment from the owner. The ConsensusDocs Standard Agreement 655 includes such a clause, including a statement that the subcontractor acknowledges that it relies on the credit of the owner, not the contractor, for payment.
By pay-when-paid clause provides that the contractor will pay the subcontractor within a certain time after receiving payment from the owner, but does not shift the entire risk of non-payment. For instance, ConsensusDocs Standard Agreement 750 provides that the contractor of payment will pay the subcontractor for satisfactory performance of its work within seven days after receipt of payment from the owner for the subcontractor’s work.
Some states, such as New York, have found that a pay-if-paid clause violates public policy. In the absence of blame on the part of the subcontractor for the owner’s non-payment, New York and other courts may limit the time period that a contractor may delay payment by reason of a pay-when-paid clause. Other jurisdictions permit pay-if-paid if the contract makes payment by the owner an express condition precedent to payment being due to a subcontractor or supplier.
In the absence of a contract clause to the contrary, non-payment is generally considered to be a breach of contract and a basis to stop work. But the reason for the non-payment is critical. Has the owner accepted the work or does it have a reason for non-payment? If a subcontract, does it have a pay-if-paid or pay-when-paid clause, and has the contractor been paid. If payment is unreasonably denied, the contractor may be entitled to suspend performance, but it is rare that the other party will not have an excuse for non-payment. The facts and contract terms must be examined closely before suspending work.
It is common to see contract terms defining when and how a contractor or subcontractor may stop work for non-payment. The standard AIA subcontract includes a provision that “if the contractor does not pay the subcontractor through no fault of the subcontractor, within seven days from the time payment should have been made as provided in the subcontract, the subcontractor may, without prejudice to any other available remedies, upon seven additional days’ written notice to the contractor, stop the work of the subcontract until payment of the amount owing has been received.
There is a general expectation that the certifier will act impartially, but generally the obligation on the certifier rests on an independent contractual duty that the certifier has to the owner or the owner’s lender, and the certifier has no duty to the contractor or subcontractor. The failure to provide a required certification, for any improper reason, will typically be a breach by the owner and the remedy will be in an action against the owner rather than the certifier.
Generally, the obligation to certify payments falls on a design professional such as an architect who is in contract with the owner. Both legally and ethically, a licensed design professional is only supposed to certify facts that it knows to be truthful through direct knowledge. There are few reported cases regarding the liability exposure of a design professional for improperly certifying payment requests.
Again, the liability for an improper certification will rest with the contracting party, such as the owner, and not the certifier. The courts in the US generally have found that the certifier does not have a legal duty to the contractor, and often the contract terms specifically limit the contractor’s rights against the certifier.
There is no information relevant to this section.
The general rule is that the certification is for payment purposes only, and that the actual amount of work performed is subject to de novo review by a court or other decision-maker. It is not common to have a specific provision that governs the reformation of the amount certified.
Most US jurisdictions will imply a reasonable time for performance on the contractor, and a similar duty on the owner not to interfere with that performance. The determination will be made based on the facts in the particular case. If an owner wants to impose a deadline, it must specify a date for completion.
Most US contracts provide that the contractor is entitled to an extension of time for delays that are beyond the contractor’s control. Even without an express provision, the law will often require an owner to forgive a delay that is caused by the owner’s acts or omissions to act. Generally, the contractor will not be entirely released from its obligation to perform, but rather will be afforded a reasonable additional amount of time.
US law allows the parties to a contract to stipulate in their agreement the amount of damages recoverable in the event of a breach. The courts will generally enforce such an agreement, so long as the amount agreed upon is not unconscionable, is not determined to be an illegal penalty, and does not otherwise violate public policy. In the US, these types of clauses are referred to as a liquidated damage provision rather than ascertained damages.
A liquidated damages provision is generally permissible when, at the time the parties enter into the contract containing the clause, the circumstances are such that the actual damages likely to flow from a subsequent breach would be difficult for the parties to estimate, and the sum agreed upon is designed to compensate the non-breaching party for the other party’s failure to perform. If the provision is drafted as a penalty, or has no relation to the amount of potential damages that might be suffered by the non-breaching party, the clause may be considered to be penal and unenforceable. This is generally true even where the provision is negotiated in good faith, at arms’ length and between parties of equal bargaining power.
There is no uniform approach to concurrent delay in all US jurisdictions. The most developed law on the issue is found in federal law, and even that continues to develop and varies based on specific contract terms and methods of delay analysis. Generally, the law tries to determine how to apportion responsibility for delays between the parties, and depending on contract terms, will allow for an extension of time for all delays that the contractor is not responsible for, including when there is a concurrent delay. In the absence of contract language that alters the general common law, the principle followed is that a contractor is entitled to time but no damages when there is a concurrent delay between the owner and contractor on the theory that the owner did not cause the contractor to incur any added costs that it would not have incurred due to its own concurrent delay.
Older US cases, before the advent of CPM-type analysis, generally took the position that neither party could recover if both parties contributed to the same total delay. The contractor would be entitled to time but not money. In certain circumstances, the courts would allow the fact-finder to apportion the delays between the parties and the contractor would be entitled to damages to the extent that it could demonstrate that the owner was responsible for a period of delay.
In more recent times, US courts have sought to apportion delay between the responsible parties. Federal courts have turned to CPM and other delay analysis methods to determine whether the government owner is responsible for the complained of the delays. If the government act or omission to act does not delay the progress of the work in a particular time period, the courts usually will find that the contractor is not entitled to damages for the complained of delay. The party seeking recovery will bear the burden of separating its delays from those chargeable to the other party. If it cannot, the delays will be likely to be considered concurrent and non-compensable.
Because of the difficult of segregating responsibility for delays, on large construction projects in the US, it is common for the contract to address the method of scheduling analysis and apportionment. It also should not be assumed that the contractor is entitled to time for all delays that are beyond its control. In many recent contracts, the risk of delays of all types, including those that are within the other party’s or a third party’s control, are transferred to the contractor and its subcontractors.
Acceleration is generally treated as an adjunct to delay analysis. In most jurisdictions, acceleration claims revolve around the concepts of directed and constructive acceleration. For both, it must first be determined why the contractor is accelerating its work. It then must be determined if the acceleration was necessitated because of a delay to the work that the contractor is responsible for or the owner. If a contractor is directed to accelerate work despite its entitlement to an extension of time under the terms of the contract or common law, the contractor will be entitled to compensation for its costs of acceleration. Often the contractor is not specifically directed to accelerate, but rather is told by the owner that its request for an extension of time will not be granted (ie constructively accelerated). The contractor has a choice: keep working at the same pace and defend the owner’s claim for liquidated damages or other delay damages while pursuing its own claim for delay damages, or accelerate the work to meet the completion date and pursue a claim for the costs of acceleration. There are business reasons for either choice. The law, however, will look to the cause of delay and seek to apportion responsibility for the acceleration and related costs.
In the US, the global or total loss claim is referred to as a "total cost claim," and its use and acceptance varies by jurisdiction.
Under federal law, and in most states, to recover under a total-cost approach, the contractor must prove that (1) the nature of the particular losses make it impossible or highly impracticable to determine them with a reasonable degree of accuracy; (2) the plaintiff's bid or estimate was realistic; (3) its actual costs were reasonable; and (4) it was not responsible for the added expenses.
In some states, such as New York, a total-cost approach is acceptable if there is no other reasonable measure of damages. Under New York law, the measure of damages is not the difference between the actual costs and bid or estimate, but the actual costs and the amount that the contractor was paid, similar to a quantum meruit approach.
Most construction contracts in the US contain specific provisions related to the process of giving “notice.” Generally, the contractor must notify the other party of a claim or change event that gives rise to additional time or costs. Some contracts also require the contractor to give notice of the damages that may arise out of the event. If the contract provides that notice is strictly required, and that the absence of written notice will be considered to be a waiver of the claim, many jurisdictions will enforce such a clause regardless of the merits of the underlying claim. This is often particularly true when a public owner is the contracting party. Where notice is not a condition precedent and the provision makes no reference to the consequences of failing to provide notice, courts may be more flexible in their interpretation of the provision.
When dealing with a public owner, there may also be statutory requirements that the owner be given written notice of the event or claim within a specified time period after the event that gives rise to the claim or after the damages are alleged to have accrued. The failure to give a statutory notice will usually be considered a waiver of the contractor's claim rights.
Once again, the treatment of notice varies by jurisdiction. For instance, under federal law, fairness may dictate a different result. Federal courts may overlook the lack of formal notice if the government knew of the circumstances that form the basis of the claim; the contracting officer actually considered the claim on its merits without raising the lack of notice; or the lack of notice was not prejudicial to the government.
The primary remedy is an action for damages. Specific performance will only lie if the claimant can show that monetary damages will be insufficient or speculative, such as when the dispute involves a unique parcel of real estate.
In most cases, damages are measured as of the date of the breach.
Parties to a contract may limit the damages that are recoverable. A common clause is a mutual waiver of consequential damages. Other clauses include limitations of liability to a specific dollar amount, such as the value of the contract work or a portion thereof.
Interest on a breach of contract claim will run from the time of the breach. The amount of interest can be set by contract. Most often, interest is based on a statutory rate, which varies by jurisdiction. Interest may not be recoverable from a governmental entity. In general, a governmental entity must have agreed to waive its sovereign immunity by statute, regulation or contract for interest to be due on late payments or for damages. Most jurisdictions have prompt payment statutes setting rates of interest on agreed on contract balances. Statutory rates of interest on judgment debts vary across the US. California’s statutory rate is 10% per annum, and 7% if the judgment debtor is a state or local governmental entity. Other jurisdictions, such as Texas, set the rate for both prejudgment and post-judgment interest at the prime rate as published by the Board of Governors of the Federal Reserve System.
In general, a material breach of contract, such as non-payment of agreed-on amounts due and owing, will give the innocent party the right to terminate the contract. Conditions may have to be met, such as written notice and an opportunity for the breaching party to cure, before the innocent party may terminate.
As described before, the enforceability of a notice provision will vary case by case, jurisdiction by jurisdiction, and depend in large part on whether or not the contract requires strict compliance with the notice provision.
The right to terminate for non-payment will depend on the facts, particularly whether the amount is agreed on or in dispute, and the prompt payment laws of the particular jurisdiction. In general, in most US jurisdictions a contracting party may only stop work for non-payment if the payment is undisputed.
A material breach is generally considered to be a party’s failure to perform a major part of the contract, which part is substantial and prevents the contract from being completed or defeats the purpose of the contract. In such circumstances, the non-breaching party will not be obliged to finish its performance under the contract.
There are no known reliable statistics on the percentage of construction disputes that are resolved in court actions or proceedings in the US rather than through alternative dispute resolution procedures. Besides US, state and local courts, construction disputes are commonly resolved using party-to-party negotiation mechanisms, dispute resolution boards, mediation and arbitration. Alternative dispute processes have grown in popularity.
Most arbitrations in the US are governed by state law or the US Arbitration Act or both. The US Arbitration Act, commonly called the Federal Arbitration Act or FAA, applies where the transaction between the parties involves interstate commerce, which most construction projects do. The FAA provides for contractually-based compulsory and binding arbitration, resulting in an award entered by an arbitrator or arbitration panel. Once an award is entered, it may be confirmed in a court of law. Once confirmed, the award is reduced to an enforceable judgment. In an arbitration, the parties give up the right to an appeal to a court on substantive grounds.
In the absence of a statutory restriction, parties can contract for any reasonable dispute process, including limiting the timeframe. The AAA has fast-track procedures for arbitration. Some courts have also adopted fast-track trial procedures.
There are numerous private organisations with experts in different fields. The choice of expert is made by the individual parties and their counsel. Parties present testimony from experts that they have chosen and paid. The experts are rarely neutral and independent. The US and state courts have developed tests to determine whether a person is qualified to give an expert opinion, including whether the expert’s methodology is generally accepted in the scientific community and will aid the trier of fact in determining the case. Opinion testimony will only be allowed if the expert can be qualified under the applicable law.
Mediation is commonly used, particularly for private construction project disputes. Many US, state and local courts have adopted mandatory mediation procedures that apply after a case has been commenced.