LEGALLY SPEAKING Substantial Performance: When is Close Good Enough? Close only counts in horseshoes (and hand grenades); so goes the old adage. The law, however, adds to the list of exceptions. When it comes to the performance of contracts for construction, a party who substantially but incompletely performs may not be liable for the costs of correcting the deficiencies in performance. The general rule of damages for a breach of contract is that a party should be placed in the position it would have been in had the contract been performed fully. This measure of damages is commonly referred to as “expectation damages.” In the case of nonconforming construction, this means the owner is entitled to the cost of repairing or reconstructing defective work. Since the case of Jacob & Youngs, Inc. v Kent in 1921, state and federal courts have recognized an exception to expectation damages for breaches in the performance of construction contracts. Where the costs of repairing or remedying a defect would result in “unreasonable economic waste,” the measure of the owner’s damages will be the difference between the value of the project as contracted for and the value as delivered. In Jacob & Youngs, Inc. v Kent, the contract was for the construction of a house specified pipe produced by a manufacturer in Reading, Pa. The contractor completed the house satisfactorily, except that the contractor installed pipe from a different manufacturer. The owner refused to pay the contractor and insisted that the contractor replace the pipe. The contractor sued for payment. The court held that, because the omission was inadvertent and the pipe was of identical specifications and equivalent quality, the proper measure of damages should be the difference in value, if any, between the house with the Reading pipe and the value with the alternative pipe, not the cost of reconstruction. The court noted that, while “[t]here is no general license to install whatever, in the builder’s judgment, may be regarded as ’just as good’,” the court “must weigh the purpose to be served, the desire to be gratified, the excuse for deviation from the letter, the cruelty of enforced adherence.” More broadly, the court recog- nized that, where a deficiency in construction has little effect on the value of the building, but correction of the deficiency would require substantial reconstruction, the contrac- tor has substantially per- formed the contract and should not be liable for the cost of repair. While the doctrine of Brian Wood Attorney Of Counsel Smith, Currie and Hancock economic waste has been widely recognized and applied since Jacob & Youngs, courts and boards of contract appeals have been reluctant to apply the doctrine to government cont ract s . Courts have treated, as sacrosanct, the proposition that the government has the right to insist on performance in strict compliance with the contract specifications and may require a contractor to correct nonconforming work. Among the earliest applying the doctrine of economic waste to government contracts and carving out exceptions to strict performance was Appeal of Valley Asphalt Corp. in 1974. There, a contractor con- structed the 11,000 ft (3,353 m) long main runway on Wright-Patterson Air Force Base. The government sought to assess back charges against the contractor for the costs of grinding and/or planing the asphalt runway to correct for deviations in elevations of the runway from elevations set forth in the contract plans and specifi- cations. The court held that “the value of the runway as completed is, insofar as elevations are concerned, not measurably When it comes to the performance of contracts for construction, a party who substantially but incompletely performs may not be liable for the costs of correcting the deficiencies in performance. less than the value of the completed runway as promised.” Finding that the contractor substantially performed the contract and that correcting the elevation variations would be economically wasteful, the court awarded the government a nominal value of $1,000 for the deficiency. A more extreme example of the application of the economic waste doctrine was Granite Const. Co v. U.S. in 1992. There, the U.S. Army Corps of Engineers directed a contractor to stop work and replace 800 ft (244 m) of nonconforming PVC waterstop embedded in the concrete of a dam. The contractor submitted a claim for the extra work required to replace the waterstop, arguing entitlement based upon (1) the government’s failure to inspect the waterstop upon del ivery; and (2) the contractor’s substantial conformance with the contract and the economic waste of replacing the waterstop. The federal circuit court rejected the contractor’s argument regarding entitlement based upon the government’s failure to inspect—holding the contractor responsible for compliance irrespective of the government’s obligation to inspect—but agreed that replacement of the waterstop was economically wasteful. Despite finding that the waterstop tested below the requirements for tensile strength, elongation and low-temperature DEEP FOUNDATIONS • MAY/JUNE 2018 • 125
