When Does a Contractor Legally Abandon a Construction Project?

by Snell & Wilmer
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Lately, we’ve been spending more time as litigators pursuing and defending claims of abandonment against contractors. It has become apparent that abandonment is often misinterpreted in its legal meaning and effect.  Here are some thoughts on abandonment to consider.

On its face, the concept of abandonment is simple enough. For any number of reasons, a contractor abandons a project when the contractor stops showing up.  Abandonment is major concern for all players on the project because it causes critical path delays and significant costs to replace the contractor with another contractor, many times at a much higher cost than the original contractors’ bid.

Abandonment can also be more complicated than just failing to show up. Legally, abandonment requires relinquishment of rights and interests with no intent of reclaiming them. See Black’s Law Dictionary 1 (7th ed. 1999).  A contractor that simply quits working, therefore, may not necessarily be abandoning its rights and interests if the contractor quit working to protect its rights instead.  In Arizona, for example, a contractor may abandon a project if it has a legal excuse to do so. See A.R.S. § 32-1154(A)(1).  Since no contractor works for free, non-payment (or even half-payment) for the contractor’s certified and approved work may be a sufficient legal excuse to quit working and abandon the project.  An owner/developer, on the other hand, may prevail in arguing a general contractor abandoned a project by failing to timely flow payments to subcontractors, causing the subcontractors to abandon work until fully and timely paid and to record liens against the owner’s property interests.  Bankruptcy, prior termination and safety concerns may be other ways of proving or disproving a contractor’s claimed abandonment.

Also keep in mind that abandonment is not just a civil remedy for damages under the applicable construction contract. In addition to claims for breach of contract, a contractor may face an administrative claim for abandonment to be investigated and enforced by the state licensing agency.  Most jurisdictions recognize that abandoned projects hurt the local economy and the general public, so state licensing agencies typically have statutory discretion to suspend or revoke licenses of contractors that abandon projects without a just legal excuse.  There is, therefore, much more to pursuing and defending abandonment claims than what may be assumed from the basic meaning of abandonment.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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