Complete and Strict Compliance, or Substantial Performance? The Legal Standard Is . . .

Yes. The Massachusetts high court, with an opportunity to address construction contract performance standards, has held that the contractor must provide “complete and strict performance” with respect to design and construction matters, but that compliance with any other contract obligation must be considered in light of materiality standards. Per the court, “good faith applies to the contract as a whole, and . . . the intentional commission of breaches of individual contract provisions must be considered in the overall context.” Thus opening the door for a quantum meruit claim arising from substantial performance, even given false payment certifications in the underlying project as discussed below.

The contractor, G4S, had falsely certified for more than a year that subcontractors and vendors had been paid to date, when in fact G4S had failed to make timely payments. The trial court held that this intentional departure from the contract terms was inconsistent with a finding of good faith and barred all recovery by G4S under quantum meruit, under existing case law.

The Massachusetts high court first confirmed existing law, that a contractor cannot recover on the contract without demonstrating “complete and strict performance.” Despite the contractor’s argument that Massachusetts should adopt the “materiality rule” in the Restatement (Second) of Contracts in place of “complete and strict performance,” the court declined to do so. But then held –

We do, however, interpret the complete and strict performance requirements in construction contracts as being limited to the design and construction itself, as explained infra. All of our previous holding imposing complete and strict performance have concerned breaches of the actual design and construction of the project.

The court noted the existing standard was “to ensure that the construction itself is done safely and correctly according to design specifications,” citing half a dozen cases concerning potential safety issues or other matters the court considered consequential. But then noted that it had not “considered in our cases the consequences of breaches of construction contract provisions that . . . do not directly involve the design and construction itself.”

The court found that the contractor’s failure to timely pay the subs “did not concern the actual design and construction of the project.” The false payment certifications, thus, are to be analyzed under a materiality standard. But it was premature for G4S to celebrate, as the court then held that timely payment was a material contract term, for a contract funded under the American Recovery and Reinvestment Act (ARRA) and based on the owner’s (Massachusetts Technology Park Corporation, or MTPC) right to terminate the contract for failure to timely pay subs.

The court then arrived at the nub of the issue. Where G4S failed to timely pay the subs and lied about this to MTPC, but also claimed that MTPC’s own failures had delayed completion of the project, did the payment failures preclude quantum meruit recovery for owner-caused delay? The court noted that recovery in quantum meruit would be an equitable remedy, and “the doctrine of clean hands is not one of absolutes.” It held:

We thus conclude that in evaluating the contractor’s good faith and right to recover under quantum meruit, we must consider the contract performance as a whole, taking in to account both parties’ actions, the different contractual breaches and the damages they caused, and most importantly the value of the project provide as compared to the amount paid for that work. We must, in the end, balance the equities and produce a just result.

Thus, the case was remanded to the trial court, who is to consider which party was responsible for delay, and if MTPC is responsible for some or all delays, whether it would be a windfall for MTPC to retain liquidated damages or avoid being held responsible for extra costs incurred by G4S as a result of those delays. Perhaps this was the best that could be expected, when at least one and probably both parties have some dirty laundry.

The case is G4S Technology LLC v. Massachusetts Technology Park Corporation, 479 Mass. 721 (June 13, 2018). We have not seen the end of this case yet. And construction project parties have a “clarified” standard to consider.