Understanding the concepts of Breach and Default in Construction Contracts

Introduction

Construction contracts provide a framework for collaboration, outlining rights, responsibilities, and expectations. However, when parties fail to meet their contractual obligations, issues of breach and default arise, introducing complexities that can impact project timelines, costs, and relationships. This article explores the underlying concept of breach and default in construction contracts and sheds light on legal considerations and potential resolutions.

Understanding Breach and Default

A breach of contract occurs when one party fails to fulfil its obligations as outlined in the contract. A breach of contract can manifest in various ways, such as delays in project completion, substandard work or failure to adhere to specifications. Default, on the other hand, occurs when a party fails to perform a duty required by the contract.

Key Considerations

1. Termination Clauses:
• Construction contracts typically include termination clauses that outline conditions under which either party can terminate the agreement. These clauses further highlight the process for invoking the termination clause. It must be borne in mind that failure to abide by the process to terminate in terms of the contract is in itself a breach of contract and may have the effect of repudiation of the contract which may lead to a claim for damages by the aggrieved party.
2. Force Majeure:
• Force majeure clauses, which excuse parties from performance obligations in the event of unforeseen circumstances, are included in contracts. This clause covers the parties in the event of unforeseen delays or other impacts to a project due to events beyond the control of the parties. The contract will usually provide for the mechanisms to be used for a Contractor to notify their client of this event and the impacts thereof. It is critical to understand the time period for the notices and claims in this regard, failing which the right to claim delays for the event may be lost.
3. Notices and Claims:
• Most construction contracts specify notice requirements and the grounds thereof in the event of a breach. Strict adherence to these requirements is crucial for preserving legal rights and pursuing remedies. For example, when drawings are not submitted to a contractor on time or access is not granted to the contractor on the agreed date, this constitutes a breach and the contract makes provision for notices and claims for these circumstances. These often include a provision for recovery of costs due to the breach.
4. Dispute Resolution Mechanisms:
• Dispute resolution mechanisms, such as mediation, arbitration, or litigation, are often outlined in construction contracts. In the event of any dispute, including those relating to breach of contract, the choice of dispute resolution is usually specified in the contract and parties must follow prescribed procedures to resolve disputes efficiently. In the event that there is no agreed dispute resolution mechanism, the matter may be referred to a court which has the necessary jurisdiction.
5. Liquidated Damages:
• Contracts may include provisions for liquidated damages, specifying predetermined amounts to be paid in the event of breaches, for example, penalties in the event that a Contractor misses the agreed date for practical completion. Clauses addressing the requirement for penalties provide relief to the aggrieved party for the stated breach.
6. Performance Bonds and Guarantees:
• Performance bonds and payment guarantees are common and are designed to secure performance. When a breach occurs, for example, non-performance or non-payment respectively, these instruments may be called upon to compensate the aggrieved party for losses suffered provided that the terms of the contract and those relating to the performance bond or payment guarantee are followed.
7. Remedies for Breach:
• There are various legal remedies for breaches of contract, including specific performance, damages, and interdictory relief. The appropriate remedy depends on the nature of the breach and the desired outcome.

Conclusion

Breach and default are inherent risks in construction projects, and addressing these issues requires a nuanced understanding of the contract and applicable law. Effective contract drafting, clear communication and an understanding and adherence to contractual and legal processes are essential components of mitigating the impact of breaches.

Members of the Association receive free contractual advice. Contact the Association to learn more.

Bilaal Dawood

Head: Membership Services