Federal Appellate Court Concludes Unreasonable Delay Equates to Material Breach of Construction Contract

When does a delay in performance become so unreasonable as to constitute a material breach of the contract and excuse future performance by the non-breaching party? The United States Court of Appeals for the Seventh Circuit recently addressed what evidence should be examined to determine if a delay in a party’s performance equates to a material breach in the absence of specific dates for performance. International Production Specialists, Inc. v. Schwing America, Inc., No. 07-3632, 2009 Westlaw 276 7143 (7th Cir. September 2, 2009)

International Production Specialists, Inc. (“IPS”) entered into a subcontract agreement with Schwing America, Inc. (“Schwing”) to make and install five silos to store and treat sludge at a waste water treatment plant owned by the general contractor, North Shore Sanitary District (“NSSD”). IPS’s portion of the project was to take about eight months. After several years of delays, some attributable to NSSD, some to IPS, and some to events beyond anyone’s control, nearly three and one-half years after the parties signed the initial purchase order, the project still had not been completed.

Schwing terminated the contract due to IPS’s failure to complete work satisfactorily within particular timeframes. The issue raised at the district court level was whether fabrication and installation by a particular date was a benefit that Schwing reasonably expected and whether the delays in performance destroyed the essential object of the contract; thus, justifying Schwing’s cancellation of the contract. The court looked to the initial dates for completion contained in correspondence and contract documents and concluded that Schwing and IPS had a meeting of the minds that the project would be completed within a particular time frame, approximately an eight month period. In determining what a reasonable time for performance is, the court suggested that the analysis begin by looking at the highly detailed documents that set forth all the various timeframes for the project, including the layout schedule. The court further noted that in determining materiality of breach and the parties’ reasonable expectations, a court should look not only at the construction schedule, but should also consider the circumstances as a whole, bearing in mind normal delays of construction, who bore the responsibility for the delays, and the benefit the parties could reasonably expect.

Posted by: Daniel P. King

Categories: Construction Contracts, Current Developments / Legislation, Federal and State Procurement / Bid Disputes