When the Breach of a Construction Contract is not a Breach

The doctrine of substantial performance holds that a contractor’s breach of a construction contract does not entitle the owner to damages because the contractor’s performance was close enough to that which the contract required. “Technical violations are excused not because compliance [is] impossible, but because actual performance is so similar to the required performance that any breach that may have been committed is immaterial. Substantial performance occurs when, although the conditions of the contract have been deviated from in trifling particulars not materially detracting from the benefit the other party would derive from a literal performance, [the other party] has received substantially the benefit [it] expected, and is, therefore, bound to perform.” United Concrete Prod., Inc. v. NJR Constr., LLC, No. CV176011932S, 2018 WL 5733720, at *4 (Conn. Super. Ct. Oct. 17, 2018). The classic example of this doctrine is a situation where the contract specifies a product manufactured by Company A but the contractor provides the same product manufactured by Company B. Because the contract expressly stated that the product shall be manufactured by Company A, the installation of the same product manufactured by a different company is a breach of the contract. However, because the products are identical other than the name of the manufacturer, the courts will not provide a remedy.

There are many materials that are exactly the same regardless of the manufacturer. In fact, most people would not consider such substitutions to be a breach of the contract. There is more of a difference between Coke and Pepsi than there is between most standard construction materials produced by different manufactures. Yet, the use a product manufactured by a company other than the one specified is a breach of contract. However, the doctrine of substantial performance is a way for the courts to allow common sense to prevail. Specifically, it allows a court to avoid awarding damages in situations where there has been no actual harm.

The more interesting question arises in situations where the contractor’s performance is deficient. In these cases, “[t]he doctrine of substantial performance [may still shield] contracting parties from the harsh effects of being held to the letter of their agreements.” Id.
The question is whether the failure at issue is “material.” Id.

Section 241 of the Restatement (Second), Contracts (1981), explains:
In determining whether a failure to render or to offer performance is material, the following circumstances are significant:
(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected;
(b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;
(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;
(d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances;
(e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.

Id. at *5. In United Concrete Prod., Inc., the court determined that supplying the required precast concrete products after the delivery date required by the parties’ agreement was not substantial performance. Id. at *6. In that case, time was of the essence and the non-breaching partied suffered substantial economic losses as the result of the delay. Id.

The important take away from the recent decision described above is that the Court was willing to consider the application of the doctrine to something other than a simple material substitution. It is, therefore, reasonable to assume that this doctrine may allow a contractor to escape liability for a certain amount of defective work under the right circumstances. In construction, there is the potential for numerous situations where defects in workmanship, which might technically constitute a breach of the contract, are sufficiently minor that their acceptance would cause no harm to the owner. Conversely, the repair of these minor defects might be very expensive. In such situations, a court might apply the doctrine of substantial performance to avoid issuing a fundamentality unfair decision.

If you should have any questions regarding a defective work issue and/or the doctrine of substantial performance, please give me a call at (203) 640-8825.

Scott Orenstein