What recourse do contractors have if I terminate the contract and hire someone else?

Full question:

I hired a construction company for a rebuild of a multi-unit building. It was damaged by fire and I have a contract that pays in three installments. I have paid one installment and they are at the halfway point. The contract stated that work would be completed by 1 Nov 06. There was no real scope of work defined in the contract except that the latest set of prints should be followed. They are still three months from finishing. What recourse do they have if I terminate the contract and hire someone else? What options and precautions do I have when settling with the contractor before I bring in a new one?

• Category: Contractors
• Date: 04/07/2025
• State: Alaska

Answer:

There are two distinct measures of damages that may be used when a building contractor breaches a construction contract by incomplete or defective performance, cost of completion or repair and diminution in value, also referred to as comparative value. The Alaska Supreme Court has stated that the preferred method of calculating damages is the cost of completion or repair in accordance with the contract specifications. This measure gives the landowner the ability to get, with the damages awarded, a performance equivalent to what he has contracted for. If the owner is held liable for breach of contract, the court will consider the following when assessing damages. Damages for the increased cost of performance are limited to those proximately caused by the breach of contract.

For work within the scope of the original contract, the contractor's remedy is limited to the contract price. It is generally agreed that once substantial performance has been shown, a construction contractor is entitled to recover the contract price, less reasonable costs of remedying the defects in work or materials. The measure of damages for remedying the defects in construction is either the cost of correcting the deficiency or, if this would involve unreasonable economic waste, the difference in value between the project as contracted for and as received. Once the plaintiff has shown that the plaintiff has substantially performed, the defendant bears the burden of proving any nonsubstantial defects in performance and how those defects should be reflected in a recoupment. The Alaska Supreme Court has suggested that where a contractor has conceded that the work is incomplete or defective, the court may require the contractor to establish the amount to be deducted, which the owner may then contest.