It is likely that this is one of your worst fears: finding out that your crews did a really bad job on a project. The installation was so poor, it was considered to be a breach of contract and required tear-out work. Your tear-out affected not only the replacement costs of materials and labor, but also related repair costs for drywall, flooring and trim.

Let me add another cost impact: the full extent of the defective electrical installation was not fully discovered until over a year after substantial completion. During that period, the cost of labor and materials escalated more than 50%. 

What happened?

The situation I have described happens all too often. Whether the problems were caused by a developer, general contractor or subcontractor, these disputes tend to end up in court. 

Let’s review an example in which a homeowner hired an electrical contractor to rewire and generally upgrade the electrical installation in an old house. Unexpected challenges, given the age and condition of the house, caused this work to take longer than planned. In addition, the contractor went through more than a few inexperienced journeymen in the process. The owner got very impatient as the delayed electrical work was holding up all the interior finishes and pressured the EC to speed up its work. 

As the job neared substantial completion in June 2017, a number of serious electrical problems began to surface. Circuit breakers were being tripped regularly, some outlets had no power at all and others shorted out (not to mention a few instances where sparks flew from the wall). An agreed-upon punch list was created to address these issues. 

Months went by and the EC’s repair costs continued to rise, yet the problems persisted. By September 2018, the punch list costs had reached over $100,000. The EC had a three-person crew working on the failures, but on an irregular schedule. Finally, in January 2019, the homeowner sent a demand letter to the contractor threatening legal action. 

The lawsuit

The homeowner filed a lawsuit against the contractor in September 2019, and then hired an expert to determine the cost of the repair work left undone by the contractor. Also included in the report were the repair costs to the house required by pulling out much of the wiring. The expert’s report was finished in February 2020, and the case was set for trial. 

At the trial, the expert testified that the repairs to the electrical work (legally speaking, the breaches of contract) and the associated house repairs would cost $215,000. With this convincing testimony, the court found the contractor liable for that amount. The contractor appealed. 

The appeal

The appellate court threw out the entire $215,000 verdict for the owner. It held that the expert’s estimate was invalid. Why?

The court emphasized that the standard for calculating the damages for breach of contract is the reasonable cost of making the work conform to the contract. In other words, the damages are the costs of getting the homeowner what was bargained for in the first place.

An equally important principle is that the damages for a breach of contract for defective work are to be calculated as of the date of the breach. Here, the court was unfortunately vague and wrote that the date of breach could be either June 2017 (the date of substantial completion), or September 2018 (the last day the contractor worked on the punch list), or January 2019 (the date of the homeowner’s demand letter).

The date of the expert report (February 2020), however, was the date the damages were calculated by the expert and that was long after the date of the breach, no matter which of the three dates the court would use. Because the expert did not tie its cost calculations to the date of the breach of contract, it was patently incorrect and especially so during an inflationary economy. 

Effect of the case

Although the result of this case may seem unfair to the homeowner, and overly generous to the EC, it makes sense. By tying the calculation of damages to the date of the breach of contract, the court’s ruling prevents an owner from delaying a lawsuit and thus causing the house to deteriorate further with resulting increased costs. The court was also concerned that the homeowner’s delay in filing its lawsuit resulted in higher repair costs because of inflation, an economic condition not the fault of either party. 

This discussion is based on the recent decision of Bandklayder Development, LLC v. Sabga III (Fla. Dist. Ct. App. 1/2/25). The court in this Florida case did a disservice to the construction industry by not deciding what date should be used to determine when a breach of contract occurs. By leaving this date undetermined, the court created the likelihood of future litigation over what the date should be.

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