When your construction project drags on far beyond the promised completion date, you may wonder if you can simply terminate your contract and find someone else to finish the job. The answer depends on several factors, including what your contract says, why the delays are happening, and whether proper procedures are followed.
Understanding Your Right to Terminate for Delays
As a homeowner, you generally have the right to terminate a construction contract when delays become unreasonable or when the contractor materially breaches the agreement. However, this right isn't automatic – it must be exercised carefully and according to specific legal requirements.
The key question isn't just whether there's a delay, but whether that delay constitutes a "material breach" of your contract. Either party can terminate the contract upon a material breach of the contract, although it is likely that the terminating party will not know at the time of termination that the other party's breach will, in fact, be deemed material. Not every delay qualifies as grounds for termination.
What Your Contract Says Matters Most
Your construction contract is the first place to look when considering termination for delays. Most well-written construction contracts include specific provisions about:
Time Requirements: Many contracts include "time is of the essence" clauses, which make meeting deadlines a fundamental requirement of the agreement. In Colorado, if the construction contract does not include a time-is-of-the-essence clause, then time is not a material term of the contract, and the failure to meet deadlines is not a material breach for which damages and a right to termination may flow. Absent a time-is-of-the-essence clause, the schedule and time-sensitive provisions in the contract become mere guidelines for performance.
Termination Clauses: Standard construction contracts often contain clauses that permit the owner to terminate the contract for cause or for the owner's convenience. These clauses often specify exactly what circumstances justify termination. Under standard construction contracts including AIA General Conditions, the owner may terminate the contractor's performance for cause if the contractor "repeatedly refuses or fails to supply enough properly skilled workers or proper materials." If a delay is so substantial that it is considered a failure to prosecute the work, the owner may have the right to terminate the contractor and hold him or her in default under the contract.
Notice Requirements: Your contract likely requires you to give written notice of problems and provide the contractor with an opportunity to cure the delay before termination becomes an option.
Liquidated Damages: Some contracts include clauses that specify a fixed daily amount you can recover for delays, rather than allowing termination. These provisions are designed to keep the project moving while compensating you for the inconvenience.
When Delays Justify Termination
Not all delays give you grounds to terminate your construction contract. Colorado law recognizes several categories of delays:
Excusable Delays: Some delays are beyond anyone's control, such as severe weather, material shortages, or permit delays caused by government agencies. Your contractor typically isn't in breach for these types of delays, and you usually can't terminate the contract because of them.
Contractor-Caused Delays: These are delays resulting from the contractor's actions or inactions – such as failing to show up consistently, not ordering materials on time, or working with insufficient crew. These delays may justify termination if they're substantial enough to constitute a material breach.
Owner-Caused Delays: Sometimes delays result from your actions as the homeowner – such as repeatedly changing plans, failing to make required decisions, or not providing access to the property. You cannot terminate a contract for delays you've caused. When (1) delay is caused by the owner or something or someone within the owner's control, (2) the delay results in additional costs to the contractor, and (3) the contractor has not assumed the risk of the delay, the owner's action (or inaction) may entitle the contractor to increased costs due to the delay and a time extension. The contract need not state that the contractor is entitled to recover for owner-caused delays, because this is an implied warranty in every contract. If an owner fails to apportion the entire delay to the project between itself and the contractor, it will be precluded from recovering delay or liquidated damages.
The courts look at whether delays are "unreasonable" considering all circumstances. Factors include the total length of delay, the reason for the delay, whether progress has completely stopped, and the impact on your ability to use the property.
Required Steps Before Termination
Before you can terminate your construction contract for delays, Colorado law and standard contract provisions typically require you to follow specific procedures:
Written Notice: You must generally provide written notice to the contractor identifying the specific problems and delays. This notice should be detailed and reference the relevant contract provisions.
Opportunity to Cure: Most contracts and legal principles require giving the contractor a reasonable opportunity to correct the problem. This might be 3-10 days for minor issues, or longer for more complex problems.
Documentation: Keep detailed records of the delays, including dates, communications, and the impact on your project. Photos, emails, and written logs can be crucial evidence if disputes arise.
Follow Contract Procedures: If your contract specifies particular notice requirements or cure periods, you must follow them exactly. Failure to do so may invalidate your termination.
Practical Considerations Before Terminating
Terminating a construction contract is a serious decision with significant consequences. Before taking this step, consider:
Cost Implications: You'll likely need to pay another contractor to complete the work, which often costs more than the original contract price. You may also be responsible for paying the original contractor for work already completed.
Time Delays: Finding a new contractor and getting them up to speed on your project will likely cause additional delays, potentially longer than waiting for the original contractor to finish.
Legal Risks: If a court later determines your termination was improper, you could be liable for the contractor's lost profits and other damages.
Completion Bonds: If your contractor has performance bonds, you might be better served by making a claim against the bond rather than terminating the contract.
Alternative Solutions to Consider
Before terminating your contract, explore other options:
Negotiate a Modified Schedule: Work with your contractor to establish a realistic completion timeline with specific milestones and consequences for missing them.
Increase Crew Size: Ask the contractor to add workers or work longer hours to make up lost time, possibly at your expense.
Partial Termination: Consider terminating only the delayed portions of work while allowing the contractor to complete other aspects of the project.
Mediation: Many construction contracts require mediation before termination. This process can often resolve disputes more quickly and cost-effectively than termination and re-hiring.
For more guidance on understanding your contract terms, see our article on Construction Contract Basics for Homeowners.
Liquidated Damages vs. Termination
Many homeowners don't realize that their contract might provide for liquidated damages instead of termination. Liquidated damages are predetermined amounts (often daily fees) that compensate you for delays without ending the contract.
In Colorado, liquidated damages clauses are generally enforceable if they meet specific requirements. In order to be enforceable, a liquidated damages clause must satisfy three conditions: (1) At the time the contract was entered into, the anticipated damages in case of breach were difficult to ascertain; (2) The parties mutually intended to liquidate them in advance; and (3) The amount of liquidated damages, when viewed as of the time the contract was made, was a reasonable estimate of the potential actual damages the breach would cause. However, liquidated damages will not be awarded in favor of a party who was at fault, in whole or in part, in causing the delay. A liquidated damages clause addressing delay in a construction contract will not be enforced when the delay is caused by the party claiming the clause's benefit.
Understanding whether your contract provides for liquidated damages, termination rights, or both can significantly impact your options when facing delays.
The Importance of Professional Legal Advice
Construction law is complex, and the consequences of improperly terminating a contract can be severe. Each situation involves unique facts, contract terms, and circumstances that require careful legal analysis.
Before terminating your construction contract for delays, you should consult with an experienced Colorado construction attorney who can:
Review your specific contract terms and circumstances
Advise whether the delays justify termination under your contract and Colorado law
Guide you through proper notice and cure procedures
Help you understand the potential costs and risks
Explore alternative solutions that might better serve your interests
For more information about important contract terms to understand, check out our guide on Key Construction Contract Terms to Watch For.
Take Action to Protect Your Rights
If you're facing significant construction delays, don't wait until the situation becomes unbearable. Early intervention can often prevent problems from escalating to the point where termination seems like the only option.
Contact an experienced Colorado construction defect attorney today for a consultation about your specific situation. We can help you understand your rights, evaluate your options, and take appropriate action to protect your investment in your home construction project. Time may be critical in preserving your legal rights, so don't delay in seeking professional guidance.
Have Questions About Construction Contracts?
Our experienced construction defect attorneys are here to help. Schedule a free 15-minute screening call to discuss your situation.
