#61: Excusing Delays in Completion
Under the rule that parties to a contract have a duty not to hinder or delay each other’s performance, an owner cannot recover damages for a delay in completion of the contractor’s work if the owner or its agents slowed down the contractor’s performance. But sometimes a third party, or the government, or a casualty or other circumstances will delay final completion of the project of which the contractor’s work is only a part, without hindering the contractor’s own work. In such a case, is the contractor excused from meeting his contractual deadline on the theory that the need for strict compliance with his deadline has become moot — even though the unanticipated circumstance didn’t hinder his work?
An example will illustrate the issue. Suppose an owner contracts separately with two prime contractors — let’s call them “Eastbound” and “Westbound” — each of whom is to build 500 feet of a one-thousand foot tunnel, each at the same unit price per foot, each in 100 days starting on the same day and ending at the same designated point smack in the middle of the mountain. If the tunnel is not completed on time, consider how damages (whether actual or liquidated) should be assessed if:
A. Eastbound reaches the midpoint 10 days late, and Westbound reaches the midpoint 50 days late; or
B. With Westbound well behind schedule, Eastbound — who is tunneling at the rate of five feet per day and is thus on pace to complete on time — takes seven weeks off to do a different job and reaches the midpoint 49 days late, while Westbound reaches the midpoint 50 days late.
Under both scenarios Eastbound will argue that it is off the hook because its failure to meet its target completion date did not delay opening the tunnel given Westbound’s greater delay. The only difference is that under scenario B, Eastbound could have finished on time but chose instead to take advantage of an opportunity to moonlight when some unanticipated “float” fell into his lap.
Contract law recognizes the doctrine of “frustration of purpose,” which “assumes the possibility of literal performance but excuses performance because supervening events have essentially destroyed the purpose for which the contract was made.” Perry v. Champlain Oil Company, 101 N.H. 97, 98 (1957). Normally the doctrine excuses a party’s performance when the value of the contract to the party seeking to be excused has been destroyed by an unanticipated and fortuitous event. But here, timely performance has turned out to be of no value to the owner, who is not the one seeking to be excused from the contractual deadline. Moreover, performance of the entire contract has not lost its value to the owner; only the completion deadline has lost its value, and only for a relatively short time. The commercial frustration defense is a poor fit.
“No harm,” then, does not necessarily mean “no foul.” But it may mean “no remedy.” An owner who must prove actual damages (because there is no enforceable liquidated damages clause), but cannot pin loss of use of the project as a whole on Eastbound, is unlikely to be awarded any damages for the breach. If, however, liquidated damages are sought, the result could be different, since proof of actual damages is not necessary for enforcement of a liquidated damages provision.
Scenario B presents an additional issue. If Eastbound was on pace to finish on time and Westbound was lagging, the owner could have issued change orders adding 100 feet to Eastbound’s scope and deducting 100 feet from Westbound’s scope, resulting in faster completion of the tunnel (120 days rather than 150) at no additional cost. By not keeping Eastbound on site, the owner likely waived any right to complain about late completion of its contract.