What are my options if I terminate my construction contract?

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:

When a construction contractor fails to complete work as agreed, the owner has two main measures of damages: the cost of completion or repair, and the diminution in value (comparative value). The Alaska Supreme Court prefers the cost of completion method, allowing the owner to receive the performance they contracted for.

If you terminate the contract, the contractor may seek damages for the work they have completed. They can recover the contract price minus reasonable costs to fix any defects. If the contractor has shown substantial performance, they may be entitled to the contract price, less any costs to remedy deficiencies.

If you decide to terminate the contract, consider the following:

• Document any incomplete or defective work.
• Assess the costs involved in hiring a new contractor.
• Negotiate a settlement with the current contractor, which may involve paying for the work completed.

Keep in mind that if you breach the contract, the contractor may need to prove any defects and how they affect the payment due. If they acknowledge the work is incomplete or defective, they must establish the amount to be deducted from the contract price, which you can contest.