One of the certainties in life, right up there with death and taxes, is that the price tag for completion will exceed the original contractor’s unpaid contract balance. Fearful of their own warranty liability, the time-honored approach of completion contractors has been to err on the side of correcting any work that may even marginally impact satisfactory completion of remaining work. At the bid stage, even with the original plans and specs and any change orders or updated drawings in hand, the completion contractor won’t be able to spot every potential error in the existing work, and so will pad his bid – or insist on a cost-plus arrangement – to protect himself against unseen issues. Cha-ching!
Faced with this, the owner/developer must anticipate that litigation with the original contractor may ensue, and will want to preserve the evidence of how the project was left at the point of abandonment or termination. Photographing and videotaping the stage of construction before the completion/correction process begins is always smart, but that snapshot-in-time sufferers from the same challenges that the completion contractor faces at bid time; all possible construction defects won’t be observable on Day 1. It’s a good idea to keep the camera handy to document things when what was once latent becomes patent – and to insist that the completion contractor call out newly observed defects before proceeding with a fix.
If the original subcontractors can be wooed back to the job (or better yet, have already agreed to the assignment of their subcontracts to the owner in the event of the contractor’s termination), there may be a basis for correction of at least their deficient work without additional cost. This assumes that the completion contractor is required to employ them – a provision that the owner (or performance bond surety) may wish to insist on, but that the completion contractor may resist (why break the huddle with a sub who dropped the ball when the prior QB threw it a pass?).
When the owner sues the original contractor for the difference between the cost of finishing the work and the unpaid balance due on the contract – the usual measure of damages in such cases, see McMullin v. Downing, 135 N.H. 675, 677-78 (1992) – the contractor will of course insist that the completion costs were excessive or unnecessary. Who has the burden of proof on this issue? Parem Contracting Corp. v. Welch Construction Co., Inc., 128 N.H. 254, 259 (1986), gives an answer in the analogous context of a terminated subcontractor [Parem] defending a counterclaim by a general contractor [Welch] for costs incurred to complete the sub’s work:
“Welch had the burden in the first instance of proving the extent and amount of its damages. [citation omitted] It was required to show that the claimed expenditures were incurred solely in completing work that Parem had agreed to perform and obtaining materials that Parem had agreed to supply. However, once the trial court found that the costs actually were incurred as alleged, it was not permitted to conclude that they ‘could have been avoided’ in the total absence of evidence to that effect. Parem, not Welch, had the burden of going forward with evidence that all or part of the costs could have been avoided without undue risk or burden” [citations omitted].
This burden-shifting framework should apply equally to owners’ claims against terminated contractors. Nevertheless, owners would do well to support their costs of completion/correction by documenting deficiencies in workmanship as best they can.