What Happens When the Procuring Entity Breaches a Construction Contract?

Construction contracts are designed to set clear expectations about work, timelines, and payments between contractors and procuring entities/clients. But what happens when a procuring entity unexpectedly breaches that contract? The 1998 Supreme Court of Jamaica decision in B.M.S. General Construction Company (1989) Ltd v. Attorney General offers valuable insights.

In this case, B.M.S. General Construction was hired by the Ministry of Education to rebuild Leicesterfield Primary School, which had been destroyed by fire. The contract, worth over $2.6 million, was supposed to last nine months, with work starting in early 1989. However, a change in government led to a shift in priorities. By May of that year, the new Minister of Education made it clear that B.M.S. should stop work and submit a claim for the expenses incurred so far. Effectively, the contract was terminated. Despite attempts to settle, negotiations stalled, prompting B.M.S. to seek legal recourse, claiming damages including compensation for work done and lost profits.

What makes this case particularly instructive is how the court examined the claims and the evidence presented. B.M.S. was able to recover many of its direct costs, such as insurance premiums and site clearing expenses. However, the claim for lost profits on the unfinished work was rejected because the company failed to provide sufficient proof that the contract would have been profitable had it been completed. The court emphasized that projected profit margins are not enough; contractors need reliable financial records and evidence of actual profitability.

Another striking aspect was the importance of documentation. The court found that B.M.S. lacked convincing records of progress and expenses, making it difficult to verify the work done before the contract ended. This highlights the critical role thorough record-keeping plays when disputes arise.

The case also shows how the court interprets a client’s actions. When the Ministry clearly indicated they would not allow the project to continue, this was treated as a contract termination. The contractor’s acknowledgment of this and the attempt to negotiate a settlement were important steps.

Finally, when negotiations fail, pursuing legal action can be necessary. B.M.S.’s decision to file suit resulted in compensation for many of its losses, though not for lost profits. In some instances modern construction contracts will have alternative dispute resolution mechanisms which must be followed.

For contractors, the B.M.S. case is a reminder of the practical realities when a client breaches a contract. Clear records, prompt and formal responses, detailed claims for incurred costs, and understanding the evidential requirements for profit claims are all essential.

The foregoing is for informational purposes only, if you find yourself in a similar situation or have questions about contract breaches, consulting with an experienced attorney can help clarify your options and safeguard your rights.