Contract documents

March 20, 2023

After you have entered into a construction contract, it is usually best practice to follow the agreed upon protocols of the agreement. By strictly complying with the contract, and absent exigent circumstances, parties may avoid a claim for default or breach while performing the work. While this may seem intuitive, occasionally, parties can become lax in strictly complying with a contract’s terms. Parties should be aware of their customs established during the project, especially where their conduct strays from the terms of the original agreement. If a dispute later arises, these customs, and any departure from the terms of the contract, may be interpreted by a trier of fact when determining whether a breach or default occurred.

This situation arose in a recent case out of New York. In 107 S. Albany St., LLC v. Scott, 211 A.D.3d 1380, 182 N.Y.S.3d 290, 2022 N.Y. Slip Op. 07276 (2022), the parties entered into AIA Contract Documents A105-2007, Standard Form of Agreement Between Owner and Contractor for a Residential or Small Commercial Project for construction of an 11-unit apartment building. Delays were experienced on the project, and eventually, the contractor did not return to the site. The owner subsequently hired additional subcontractors to complete the work. Both parties filed claims and counterclaims in court for breach of contract, among other things.

On appeal, the court considered whether the parties’ departure from the contract’s change order procedure constituted a breach of the contract.[1] Rather than strictly follow the A105 change order procedure, the parties used informal text messages and e-mails for changes to the work. The court noted that certain contractual requirements, such as change order procedures, do not apply where “the conduct of the parties demonstrates an indisputable mutual departure from the written agreement and the changes were clearly requested by plaintiff and executed by defendant.”[2]  Because the parties’ customs were not in accordance with the requirements of the contract, the parties “waived their contractual right to insist upon strict compliance with the change order condition.” As such, the court held that the failure to comply with the A105’s change order procedure does not constitute a breach of contract, and remitted the matter to the lower court for further proceedings.

This case underscores the importance of strictly adhering to a contract’s terms, and demonstrates the possible consequences of straying away from those requirements. Parties should adopt behaviors during that project that are consistent with the contract’s terms. Failure to do so may give rise to a waiver of certain rights or defenses. In all, it is important to be conscious of the acceptable practices on a construction project, and regularly review the terms of the underlying agreement to ensure that they are consistently followed during the project. If not, the terms of the contract can be modified by virtue of the parties’ conduct.

AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.

[1] Id. at 1381.

[2] Id.