Claim and Disputes

Case Studies

Materi Kuliah Manajemen Konstruksi

Dosen: Emma Akmalah, Ph.D.
Case Study 1

Owner was dissatisfied with the quality

of Contractor’s workmanship. Owner
took the position that the poor
workmanship was a material breach of
contract which justified a change in the
payment terms of the contract.
• The Court of Appeals of Indiana
disagreed. Given the complexity of
a construction project, it would be
unfair to treat every workmanship as
a material breach of contract.
Contractor was entitled to notice of
the problem and a reasonable
opportunity to correct it.
• Defective workmanship is an
immaterial breach of contract unless
and until Contractor fails to correct
the problem after a reasonable
opportunity to do so. At that point it
becomes a material breach of
contract.
Case Study 2

Owner awarded Contractor a contract for

construction of an apartment building. The
contract stated that Contractor would comply
with the provisions of the “Manual of Accident
Prevention in Construction” of the Associated
General Contractors of America (AGC). An
employee of a subcontractor was injured when
he fell from an upper floor. Contractor said it
was not responsible for the safety of
subcontractor’s employees.
The Court of Appeals of Iowa ruled that
the AGC manual had been incorporated
by reference into Contractor’s
agreement. The manual gave Contractor
overall responsibility for job site safety
and required Contractor to erect and
maintain proper barricades. Contractor
had failed to do this, so Contractor was
liable for the injury.
Case Study 3

Owner’s on-site representative inspected

Contractor’s installation of a roof.
Contractor’s work was later accepted and
final payment was made. After final
acceptance and payment, Owner sued
contractor for defective workmanship in
the roof installation. Contractor responded
that Owner’s claim had been waived by
final acceptance.
The California Court of Appeal agreed.
The Court said that Owner’s on-site
representative knew or should have
known of the defects prior to final
acceptance. The knowledge of Owner’s
agent is imputed to Owner. Therefore,
Owner accepted the project with imputed
knowledge of patent, or apparent, defects
and thereby waived the right to bring a
claim against Contractor for those defects.
Case Study 4
Contractor awarded subcontract using
Contractor’s standard, preprinted subcontract
form. Subcontract stated that payment to
Subcontractor would be due 10 days after
Contractor received payment from owner. Owner
didn’t pay Contractor, so Contractor refused to
pay Subcontractor. Subcontractor argued that
clause in subcontract was intended only to give
Contractor a reasonable time to make payment,
not to excuse payment altogether if Contractor
didn’t get paid by Owner.
The Court of Appeal of Louisiana ruled
that the intended meaning of the
payment clause was ambiguous. The
preprinted subcontract form had
obviously been drafted by Contractor.
Therefore, the clause was construed
against Contractor and Subcontractor’s
interpretation prevailed.
Case Study 5

Owner awarded Contractor a lump-sum

construction contract. Contract called for Owner
to make a monthly progress payments to
Contractor based on Architect’s certification of
Contractor’s percentage of completion. Architect
certified a particular percentage of completion,
but Owner refused to make a progress payment
for that amount unless certain changes were made
in the terms of contract. Contractor sued Owner
for breach of contract.
The Missouri Court of Appeals ruled that
Owner did breach the contract. When a
contract establishes Architect as the party
responsible for determining Contractor
percentage of completion, that
determination is binding on both Owner
and Architect. Owner was not entitled to
ignore Architect’s certification or to
impose additional preconditions before
making the progress payment.
Case Study 6
Owner awarded Contractor a contract for
construction of bridges over a canal.
Contract included construction of concrete
barrier rail at a unit price of $42 or linear
foot. Rather than using fixed forms, as
Owner expected, Contractor used slip forms
to build the barrier rail. Owner claimed it
was entitled to a price reduction, because
the use of slip forms save Contractor a great
deal of money.
The Court of Appeals of North Carolina
ruled that the Owner had no right to take a
credit. The contract simply referred to the
use of “forms”. When a contract does not
specify a particular method of performance,
the contractor is free to choose any method
as long as it achieves compliance with the
specifications. If the contractors complies
with the specifications, the owner cannot
treat the contractor’s method of
performance as a deductive change in the
work.
Case Study 7

Owner awarded highway construction

contract to Contractor. Owner made
irregular progress payments, violating the
terms of the contract. Contractor
experienced severe cash-flow problems
and went out of business. Contractor sued
Owner for the destruction of the business.
The Commonwealth Court of
Pennsylvania denied the claim, saying
that the destruction of an entire
business is simply not a foreseeable
result of the failure to make timely
progress payments. Therefore, these
were not recoverable consequential
damages.
Case Study 8

Owner rejected completed industrial

building because the metal siding had an
uneven finish when view from an angle
in strong sunlight. Owner relied on
contract clause giving its architect the
final decision regarding “artistic effect”.
In response to Contractor’s suit, the U.S.
Court of Appeals ruled that Owner was
not entitled to reject the building on these
grounds. The court said that aesthetic
factors must be considered in a reasonable
commercial context. The building was
intended as a functional, industrial facility,
not a thing of beauty. When considered in
that context, Owner’s rejection due to an
uneven finish was unreasonable.
Case Study 9

Contractor awarded subcontract calling for

monthly progress payments. Contractor then
refused to pay Subcontractor until
Subcontractor’s work was complete.

Subcontractor refused to perform any more

work on the grounds that was not being
paid. Contractor claimed the refusal to work
was a breach of the subcontract.
• The Appellate Court of Connecticut
ruled that the Contractor’s failure to
make progress payments was a material
breach of the subcontract, as payment
was fundamental to the purpose of the
agreement.
• Contractor material breach justified
Subcontractor’s refusal to perform.
Subcontractor was not liable for breach
of the subcontract.
Case Study 10

• Contract for construction of

condominium project included clause
requiring prior written authorization
from the project owner before the
contractor performed any extra work.
• Owing to errors in Owner’s plans, it
was necessary for Contractor to make
changes in the roof and trusses.
• Owner’s superintendent orally directed
Contractor to proceed and assured
Contractor that the extra work will be
paid for. No written change order was
issued, however.
• When Contractor sought to recover
payment for the extra work, Owner
argued that it was not obligated to pay
in absence of a written change order.
The Supreme Court of Nevada
disagreed. By issuing an oral directive
and standing by while Contractor
followed that directive, Owner waived
the contract requirement that all
changes be authorized in writing in
advance.
Case Study 11
• Contractor completed a project. Owner
inspected and accepted the project and made
final payment to Contractor.
• Contractor then brought a claim against
Owner for additional compensation due to
unforeseen site conditions encountered
during construction. Owner responded that
under the terms of the contract, acceptance of
final payment operated as a waiver and
release by Contractor of any claim relating to
the contract.
The Court of Appeals of Ohio agreed
with Owner. The contract made it clear
that acceptance of final payment
precluded Contractor from asserting any
new claims. The clause, which is quite
standard, is enforceable. Once
Contractor accepted final payment, it
could not claim any additional
compensation.
Case Study 12

• Contract contained an express warranty

of the Contractor’s materials and
workmanship. Owner informed
Contractor that it was dissatisfied with
the quality of Contractor’s work and
would be forced to withhold future
progress payments.
• Contractor treated this as a breach of
contract and walked off the job. Owner
argued that Contractor breached the
contract first by breaching the express
warranty of the workmanship.
The Court of Appeals of Indiana ruled that
Owner breached the contract. Before a
workmanship warranty problem becomes
a material breach of contract, the
contractor must be given a reasonable
opportunity to correct the problem. Owner
never gave Contractor that opportunity.
Therefore, Owner was not justified in
unilaterally changing payment terms of
the contract. Owner, rather than
Contractor, breached the contract.