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Bankruptcy Law - Effect of Bankruptcy on Construction Project

When a general contractor, subcontractor, or supplier cannot pay its debts in the ordinary course of business and files for bankruptcy, there can be substantial ramifications to the construction project. The completion of the project itself can be jeopardized, and payment for the services or materials already received or contracted for is most certainly affected.

Authority of Owner's Agent With Respect to Contract Modifications

Owners do not always oversee every aspect of the construction process and oftentimes employ agents to represent their interests at the construction site. Commonly, the architect or construction manager will serve in the role of "agent" to the owner. A question of the agent's authority will frequently arise when a dispute surfaces concerning modifications to the construction contract.

As-Planned versus As-Built Schedule

When construction on a project does not proceed as planned, the question of damages arises, i.e. who pays and how much. Determining the amount of damages can be accomplished by comparing the as-planned construction schedule to the as-built schedule. The damages calculation will be based on the difference between the two.

NEGLIGENCE ACTIONS AGAINST CONTRACTORS

In addition to a breach of contract action against a contractor, an owner may also be entitled to a negligence action against the contractor. This type of action is based upon the contractor's negligence during the course of a construction project. The main reason for asserting a negligence action against a contractor is that the damages in a negligence action generally exceed the damages for a breach of contract action.

Patent versus Latent Construction Defects

A significant issue for homeowners and contractors alike is whether a construction defect is patent or latent. Which category the defect falls into will determine the time within which an action must be brought on the defect. Generally, this means a difference in years with latent defects enjoying a longer limitations period.