Construction contracting, unlike most other contractual transactions, often leaves open to interpretation the question of whether a contract has been sufficiently performed to entitle a party to payment. It is virtually impossible to have the equivalent of the Uniform Commercial Code’s “perfect tender” in construction contracting. Objectively, construction contracts typically define what constitutes “substantial completion” of a project, the point in a project where the work is sufficiently complete to allow the owner to occupy and use the project for its intended purpose. However, substantial completion, contractually defined or not, does not necessarily mandate the precise performance of every contractual requirement. That is where the doctrine of substantial performance comes into play.
Substantial performance excuses a technical breach of a contract when actual performance is so similar to the required performance that any breach is deemed immaterial. This becomes a critical determination from both the contractor’s and owner’s perspective. Indeed, substantial performance is a constructive condition of an owner’s duty to pay. Concomitantly, if there is an unexcused failure by a contractor to render substantial performance, the contractor cannot maintain an action on the contract for any unpaid balance. It is easy to see how this delicate balance can be the genesis of disputes on a project that often leads to costly, protracted litigation.
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