Construction Law 101: - WPDN

Construction Law 101:

The swimming pools are filled up, the kids are out of school, and the orange barrels and signs are out on the roadway.  All of these are clear signs of one thing – summer is here!  Along with summer comes the construction season in Wyoming, so you are all likely out working on the many projects you have lined up.  As you work through this busy season, we wanted to provide a broad overview of some of the legal concepts that may be helpful as you complete the work.  This outline is intended to provide only a general overview of the existing construction law in Wyoming.  If you have more specific questions or situations, give us a call, we are always happy to discuss.    

I. Breach of Contract

Breach of contract cases in Wyoming generally involves either a contractor filing suit against a subcontractor, or a home buyer making a claim against the builder.   Generally, any claims related to a breach of contract must be brought within ten (10) years (written contract) or eight (8) years (oral contract) from the date upon which the breach of contract occurred.   Generally, before asserting a claim of this nature, one must complete his or her own obligations under the contract.  Scherer v. Schuler Custom Homes Constr., 2004 WY 109, 98 P.3d 159 (Wyo. 2004)

II. Implied Covenant Of Good Faith and Fair Dealing

Every construction contract also carries with it a duty of good faith and fair dealing.  A breach of the implied covenant occurs when one party to the contract interferes or fails to cooperate in the other party’s performance.  This doctrine may not be used to create new, independent rights or duties beyond those agreed by the parties, but must arise from the language used in the contract, or be necessary to effectuate the parties’ intentions.  The implied covenant “requires that parties to a contract not commit an act that would injure the rights of the other party to receive the benefit of their agreement.”  Compliance with the obligation to perform a contract in good faith requires that a party’s actions be consistent with the agreed common purpose and justified expectations of the other party.  The covenant of good faith and fair dealing may not, however, be construed to establish new, independent rights or duties not agreed upon by the parties.

Examples of conduct which have been found to breach the covenant of good faith and fair dealing in the construction context include the unreasonable failure of an owner or engineer to approve reasonable requests for substitution of specified materials, unreasonable refusals to approve change orders or requests for time extensions, and unreasonable rejection of completed work in the absence of applicable standards.  It is possible to have a breach of the covenant of good faith and fair dealing without breaching the express terms of the contract.  Therefore in those difficult situations where neither party has technically breached the contract, care should be taken to ensure you, or your opponent does not run afoul of this additional contract requirement.   The evidence must show that the party went beyond its contractual rights which amounted to self-dealing or breach of community standards of decency, fairness, and reasonableness, in order to effectuate a breach of the covenant of good faith and fair dealing.  

III. Breach of Warranty

A claim for breach of warranty occurs when a customer is not satisfied with the quality of workmanship contractually guaranteed by the contractor.  The warranty will either be contained in express terms in the written contract, or even if not specifically stated in the written contract will be implied in the context of residential construction.  Building or construction contracts contain within them either an implied or express warranty that the work will be sufficient for a stated and known purpose and “will be performed in a skillful, careful, diligent, and workmanlike manner.”  Compliance with this implied warranty is proven by the substantial performance of the contract.  If minor defects exist at the time of complete performance, the defects will be corrected by the contractor at their expense. 

The contractor’s duty includes areas such as, the employment of skill and care in the selection of materials and performance of their work, completion of the job in a workmanlike manner and substantially complying with the owner’s plans and specifications.  These duties continue even after the completion of the project.  However, a contractor cannot be held liable for damages caused by defects in the plans and specifications, as long as they completed the job in a workmanlike manner and in substantial compliance with those plans and specifications.  However, a contractor does have a duty to warn the owner of defects in the project which would be likely to cause the work to fail if the contractor knows, or reasonably should know of those defects.

IV. Misrepresentation and Fraud

To assert a claim of misrepresentation, it must be shown that false information was supplied in the course of one’s business for the guidance of others in their business, and a failure to exercise reasonable care in obtaining or relating the information, and pecuniary loss resulting from justifiable reliance thereon.”  This rule cannot be used as a method to avoid one’s obligations under a contract, nor will it provide a scapegoat for self-inflicted damages. 

In order to prevail on an intentional misrepresentation claim, the Plaintiff must demonstrate by clear and convincing evidence that “1) the defendant[s] made a false representation intending to induce action by the plaintiff[s]; 2) the plaintiff[s] reasonably believed the representation to be true, and 3) the plaintiff[s] suffered damages in relying on the false representation.” Well drafted disclaimer and merger clauses in a contract will negate any intentional misrepresentation claim if they are clear and unambiguous.  In addition, even if a contractor is not under a duty to provide information, if he does speak, he is under a duty to speak truthfully and to make full and fair disclosure. Reliance is reasonable when false representations have occurred prior to the execution of the contract which is sought to be avoided or for which damages are sought to be recovered.

V. Negligent Selection of Independent Contractors

Historically, one who employs an independent contractor is not generally liable for the contractor’s negligent acts.   This legal concept generally prevented a general contractor, or upper-tier subcontractor, from being responsible for the means and methods used by its subcontractors if they caused bodily injury to another subcontractor or person on the job site.  In a 2017 case, the Wyoming Supreme Court changed this rule.  Now, a contractor can be held responsible for the negligent actions of its subcontractors if the contractor fails to exercise reasonable care to select and employ a competent subcontractor to do work which will involve a risk of physical harm unless it is skillfully and carefully done, or to perform any duty which the employer owes to third persons. 

Therefore, care must be exercised in the selection of subcontractors to perform work which may involve the risk of physical harm or to ensure the safety of a project in which the general contractor contracted to perform under the contract.  The classic example of this situation is the construction company who is awarded a contract for highway construction, and subcontracts for the provision of traffic control.  The general contractor could be held responsible for a traffic accident occurring on the construction site if it was not careful in the selection of that traffic control subcontractor.   

VI. Delay Damages Upon a Breach of Contract

Delay damages can be both established and described in the contract itself, or within a reasonable amount of time after the signing of the contract.  Where no time for performance is specified in a contract, the law implies performance must be within a reasonable time, and what is a reasonable time depends upon the circumstances of each case.  Courts allow contractors to recover the number of damages suffered as a result of the delay caused by others in not performing their obligations under the contract in a timely manner.   

In a 2008 case, the Wyoming Supreme Court held that a version of the American Institute of Architects (AIA) provision 8.3.1 is not an example of a “no damage for delay” clause.  The provision states:

8.3.1 If the Contractor is delayed at any time in the commencement or progress of the Work by any act or neglect of the Owner or Architect, or of an employee of either … or by changes ordered in the Work … or other causes beyond the Contractor’s control, … then the Contract Time shall be extended by Change Order for such reasonable time as the Architect may determine.

The Court stated that parties may contract out of delay damages, but that this language was not specific enough to achieve that result. The Court instructed that the contract must clearly state what “sole and exclusive” remedies for a delay will be available.  If the contract is not specific then other contract remedies will be available, including contract damages.