Tips for Contractors: When to Walk Away from a Project Part 2
Unfortunately, construction projects don’t always proceed according to plan. Projects that seemed simple on paper can turn out to be a real headache in the field. On the other hand, overly complicated design plans may turn out to be simple once the foundation is laid and steel girders are erected. Your contract (hopefully) does a proficient job of informing you about the needs of a project before you find yourself entrenched in a quagmire of contract-related disputes, but this isn’t always the case. And sometimes, it may feel like your only option is to walk away.
This might be the right move for your business, but it could also signal the beginning of the end. Why? Because walking away from a project is viewed as a breach of contract unless you can prove otherwise. As we discussed in part one of this four-part series, it’s important to consult a Jacksonville construction attorney before making any myopic decisions that could have long-term consequences. When a project has spiraled out of control, transgressing the scope of work and bleeding your company’s coffers, you can’t simply hit a hard reset and move on. You need to understand the circumstances that permit a contractor to walk away.
Nonpayment: the Most Common Reason to Stop Work
When approved invoices haven’t been paid, it’s difficult to maintain faith in an owner’s ability to fund a project. This may permit you to stop working, but your contract will need to include a clause supporting this action. Depending on your contract, you may be able to halt work as soon as a due payment becomes delinquent or after complying with the proper notice requirements. Under the American Institute of Architects’ (AIA) A201- 2017, “General Conditions of the Contract for Construction,” the contractor must be able to show that one of the following two conditions have been satisfied to legally stop work (after providing a supplementary week’s notice):
- When the architect fails to provide the necessary certification of the contractor’s payment application within one week of receipt, at no fault of the contractor.
- When the owner neglects to pay the approved pay application within one week of the date noted in the terms and conditions of the contract.
This clause is referenced in many AIA owner-contractor agreements, but these conditions may differ from those featured in your contract. Consult a Jacksonville construction attorney to review your contract before taking any inadvisable actions. An attorney can also revise your contract to better support your right to walk away when the owner’s negligence is cutting into your bottom line.
Other Solutions for Nonpayment: Keep Working, Get Reimbursed
Another AIA contract, A401-2017, “Standard Form of Agreement Between Contractor and Subcontractor” offers a different solution for nonpayment. This contract stipulates that a contractor or subcontractor facing nonpayment that stops work has the right to extend the project timeline for the period of time work was stopped to resolve the dispute. They are also entitled to reimbursements for costs associated with demobilization and remobilization. Depending on the particulars of your situation, and the terms and conditions of your contract, this may be the preferred solution for your business.
It’s important to note that the contracts we mentioned in this article may not align with the contracts you have been signing. Regardless, they illustrate some of the ways contractors can gain relief for nonpayment through a well-written contract. For contract review, revision, and drafting services, consult our Jacksonville construction attorneys.
If you would like to speak with one of our Jacksonville construction attorneys, please contact us today.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.