By David Nelson and Beau Bourgeois

In humanity’s never ending quest for perfection, being close to perfect is still failure. If you grew up playing sports you undoubtedly heard a grizzled coach disgustedly say, “[c]lose only counts in horseshoes, hand grenades and atomic warfare.” However, under the Doctrine of Substantial Performance (and the related “Economic Waste” theory), construction projects may be another example of when close is good enough.

At its core a construction contract contains the agreement between the owner and contractor specifying what the contractor agrees to build in exchange for the amount the owner agrees to pay. In many cases owners hire an architect or engineer to develop plans and specifications to specify exactly what the contractor must build. Logically, it would seem that an owner should not be required to pay if the contractor did not build exactly what it agreed to build. Isn’t a party entitled to exactly that for which it bargained? The answer is– not always.

For example, assume that the owner specified that all lumber used must be manufactured by company A, but the contractor actually used lumber manufactured by company B. If the error was not discovered until after the project was nearing completion, and the wood was of similar quality, consider the potential inequity that would result if the contractor was required to completely tear down and rebuild using company A’s lumber just to be paid. The Doctrine of Substantial Performance is designed to address this potential inequity, by limiting an owner’s damage to the loss in value as opposed to the cost of repair when a contractor has substantially performed and the cost of full performance far outweighs the value to the owner.

Under Louisiana law, where a contractor substantially performs a building contract, he is entitled to the contract price less the damages that the owner can prove are attributable to the contractor’s breach by failing to strictly to comply with the plans and specifications.[1] The contractor bears the initial burden of proving substantial performance (that the thing is fit for its intended purpose), but then the burden of proof shifts to the owner to prove that a deficiency in the work exists, that the deficiency was the result of faulty material or improper workmanship or failure to comply with the plans and specifications, and the damages sustained as a result.[2]

Thus, to be entitled to payment the contractor must only prove that it substantially performed the contract. This is a question of fact to be decided by the trial court.[3] Substantial performance occurs when a building is fit for its intended purpose even if certain deficiencies or omissions in construction exist.[4] The factors to consider in determining whether substantial performance is reached include “[1] the extent of the defect or non-performance, [2] the degree to which the purpose of the contract is defeated, [3] the ease of correction, and [4] the use or benefit to the owner of the work already performed.”[5] The jurisprudence on this issue indicates that “substantial performance by a contractor is readily found, despite the existence of a large number of defects in both material and workmanship, unless the structure is Totally [sic] unfit for the purpose for which it was originally intended.”[6]

The Doctrine of Substantial Performance does not unfairly deprive the owner of that to which it bargained, but does shift the burden of proof to the owner. Once the contractor proves that it substantially performed the contract, the burden shifts to the owner to prove:

  1. the existence and nature of the defects;
  2. that the defects were the result of faulty materials, improper workmanship, or the failure to follow the plans and specifications; and,
  3. the cost of repair or completion.

An owner seeking to obtain specific performance or a reduction in the contract price in the amount required to “perfect” or fully complete the work must prove both the necessity of such “perfection” and that the benefit of full performance outweighs the costs.[7] Following the above example, if the owner could prove that the lumber used by the contractor was structurally unsound he/she would likely be entitled to require the complete demolition and rebuild of the structure. In that case the benefit to the owner (a structural sound structure) would outweigh the considerable cost to the contractor. On the other hand, if the lumber used by the contractor was only proven to have a shorter useful life than that of lumber from manufacturer A, the owner’s remedy may be limited to the diminished value of the structure.

The Doctrine of Substantial Performance recognizes that there is no such creature as a perfect construction project and purports to balance the respective rights of the parties to achieve a fair and equitable result.

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[1]  Airco Refrigeration Serv., Inc. v. Fink, 134 So. 2d 880, 882 (La. 1961).

[2]  Superior Derrick Servs., L.L.C. v. LONESTAR 203, 547 F. App’x 432, 439 (5th Cir. 2013) (citing Neel v. O’Quinn, 313 So. 2d 286, 290 (La. App. 3d Cir. 1975)).

[3] Id. (citing Rice v. Mesa General Contractor, LLC, 986 So. 2d 122, 129 (La. App. 5th Cir. 2008); Neel, 313 So. 2d at 290).

[4] Rice, 986 So. 2d at 219 (citing Mount Mariah Baptist Church, Inc. v. Pannell’s Associated Electric, Inc., 835 So. 2d 880 (La. App. 2d Cir. 2002)); Neel, 313 So. 2d at 290 (citing Master Maintenance Engineering, Inc. v. McManus, 292 So. 2d 284 (La. App.1st Cir. 1974); Jerrie Ice Co. v. Col-Flake Corporation, 174 F. Supp. 21 (E.D. La. 1959), affirmed 278 F.2d 508 (5th Cir. 1960)).

[5] Cosman v. Cabrera, 28 So. 3d 1075, 1080–81 (La. App. 1st Cir. 2009) (citing Mayeux v. McInnis, 809 So.2d 310, 313 (La. App. 1st Cir. 2001). See also Neel, 313 So. 2d at 290 (citing Airco, 134 So. 2d 880).

[6] Neel, 313 So. 2d at 291 (citing Clark v. Whitener, 296 So. 2d 393 (La. App. 2d Cir. 1974)).

[7] Id. at 290 (citing Nichols Ford Co., Inc. v. Hughes, 292 So. 2d 345 (La. App. 2d Cir. 1974); U-Finish Homes, Inc. v. Michel, 183 So. 2d 101 (La. App. 1st Cir. 1965)). See also Superior Derrick Servs., 547 F. App’x at 439–40; Cosman, 28 So. 3d at 1080.