Owner's Liability Under Construction Contracts

I am often asked about the ways an owner becomes liable to a contractor on a construction project. Look for the answers in the written contract. Subject to the terms of the written contract, an owner may be exposed to liability in the following situations.

Owner's Duty Not to Delay

Provisions in a written contract designating the time for completion are not solely for the benefit of the owner. The owner may be liable to the contractor when delays by the owner cause damages to the contractor. Both the owner and the contractor have an implied duty to cooperate in performing the contract. As one Oregon court has stated, "[in] every expressed contract for the erection of a building or for the performance of other constructive work, there is an implied term that the owner or other person for whom the work is contracted to be done, will not obstruct, hinder or delay the contractor."

Interference With Contractor's Work Sequence

When an owner interferes with the contractor's planned work sequence, and progress is held up as a result, the contractor is entitled to an extension of time. The delay may also entitle the contractor to damages if the owner's actions are not provided for in the contract.

Scheduling considerations become even more significant when using multiple primes, an approach sometimes used for "fast-track" construction. Where the owner breaches its duty to manage and coordinate the work of various multiple prime contractors in a "fast-track project" and to respond promptly to problems of delay or design, the owner may be liable for delay costs.

If the contractor is improperly required to accelerate his work at the direction of the owner, then the owner may be liable for delay and extra costs. The acceleration order may be expressly stated by the owner, or it may be a "constructive order" to accelerate, meaning the order is implied from the owner's conduct or statements.

Delay Due to Change Orders, Shop Drawings, Submittals, and Approval of Subcontractors

If delays occur because of an owner's changes in the plans, the contractor may be entitled to recover for additional costs. When an owner is promptly notified of an error in the specifications, the owner must correct the error within a reasonable time. What is "reasonable" depends on the particular facts and circumstances.

An unreasonable length of time in approving shop drawings may also be a breach of contract that would entitle the contractor to receive compensation. Delay caused by a dilatory inspection or approval of submittals prior to installation may also be compensable. An owner may also be liable for an arbitrary refusal to approve (or for delay in approving) a request for substitution of a subcontractor when the original subcontractor is unable to perform.

Delay in Supplying Materials or Furnishing Equipment

When the contract requires the owner to supply materials or equipment necessary for the contractor's performance, the owner may be liable to the contractor for delay if it fails to do so.

Excessive and Unreasonable Inspection

If the contract does not provide for a more stringent inspection than normal, a contractor can reasonably assume that the standards in the industry will govern the acceptability of the work. If the owner imposes a standard of performance that is higher or requires closer inspection than the usual trade practice, the contractor may be entitled to recover. The contractor may also be entitled to compensation if the owner delays in notifying the contractor of the results of inspections.

This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

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